“They cut 2% from my bill — do I just lose it?” No. Form 16A for contractors is the certificate that turns that cut into credit against your own tax, and the law puts the duty to issue it squarely on whoever made the deduction. There is also a section that says you cannot be made to pay the same tax again, and most owners have never heard of it.

The deduction is not a cost, until you lose the paper

When an EPC contractor or a government division passes your bill, a percentage comes off before the payment reaches you. Our note on TDS on machinery hire charges works through which rate applies to which kind of work and why the answer changes with how the contract is written.

That money is not gone. It has been paid to the government against your permanent account number, and it comes back as credit when you file your return. The certificate is the bridge between the two. Lose the bridge and the money is still technically yours, but you are now reconstructing it from bank statements and bill copies in the week before a filing deadline.

Why Form 16A for contractors is a duty on the client, not a favour

Owners often ask for the certificate apologetically, as though it were an administrative favour. It is an obligation.

Section 395(4)(a) of the Income-tax Act, 2025 provides that every person deducting or collecting tax shall issue a certificate to the deductee specifying the amount of tax deducted or collected, the rate at which it was deducted, and any other particulars as may be prescribed, within such period as may be prescribed. The section does not make it conditional on you asking nicely.

The Act also puts a price on not doing it. Section 467 lists the failure to furnish a certificate required under Section 395(4) among the defaults it penalises, and provides that the penalty for that particular failure shall not exceed the amount of tax deductible. A polite reminder that names the section tends to move a finance department faster than a third phone call to the site office.

One thing the Act deliberately does not do is print a form number. It requires a certificate in the form and within the period that may be prescribed, leaving both to the Rules. The document everyone means by Form 16A is the non-salary version of that certificate, generated from the deductor’s quarterly statement. We are not quoting a due date here for the same reason we are not quoting a form number: the Act delegates it, and a stale date in an article is worse than no date.

The section that stops you paying twice

Here is the situation that ruins a contractor’s year. The client deducted the tax from your bill. The client never deposited it. Your credit does not appear, and a demand lands on you for tax you never received in the first place.

Section 401 of the Income-tax Act, 2025 is short enough to quote in full: where tax is deductible at the source under this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. The bar operates on the deduction having been made, not on the deposit having happened. Recovery is the department’s problem with the deductor.

What the section needs from you is proof that the deduction was actually made. That means keeping the bill you raised, the payment advice or bank credit showing the net amount, and any correspondence in which the client acknowledges the deduction. Owners already tracking delayed payments on government and EPC work usually have most of that file already.

The paper trail worth keeping

Document Who produces it What it proves
Your invoice You The gross amount the deduction was calculated on
Payment advice or bank credit The client That a net amount was paid, so a deduction was made
The TDS certificate The client, under Section 395(4) The amount and rate deducted
Your annual tax statement on the portal The department’s systems That the deduction was reported against your PAN
Lower deduction certificate, if you hold one The Assessing Officer, under Section 395(1) The rate the client was required to apply

Check the fourth row every quarter rather than every March. A deduction that never reached your statement is a problem with a three-month fix and a twelve-month headache, and the difference is when you noticed.

When the deduction runs ahead of what you owe

On machine hire and works contracts the deduction is a flat percentage of the gross bill. Your actual tax is a percentage of profit. On thin-margin work the first number can comfortably exceed the second, which means you spend the year lending the government money and waiting for a refund.

Section 395(1) is the route out. The payee applies to the Assessing Officer for deduction at a lower rate or no deduction, and if the officer is satisfied that the payee’s total income justifies it, a certificate is issued and the payer must deduct at the rate specified in it until it expires. Owners filing under the presumptive route should read this alongside our note on presumptive taxation for contractors, because the declared margin there is often what makes the case that the standard deduction is too high.

Two housekeeping points that cost people money. The client cannot deduct correctly without your correct PAN, so get it on the work order rather than on the first invoice. And keep the income tax deduction side separate in your head from GST TDS, which is a different deduction under a different law and is covered in our note on GST TDS on works contracts. A bill on a government contract can carry both.

The bottom line

Collect the certificate every quarter, check your annual tax statement while there is still time to fix it, and quote Section 395(4) when a client treats the certificate as optional. If the deduction consistently exceeds your real liability, apply under Section 395(1) instead of financing the gap. And if a deduction was made but never deposited, Section 401 says the tax is not yours to pay twice. You can check your deduction statement and download certificates on the income tax e-filing portal.

If the working capital gap between the bill and the refund is what is hurting, compare equipment finance and working capital options before the next quarter, or look at what is out for bid on the current tenders and opportunities list.

Rates, schemes, specifications and prices change — confirm current terms with the OEM, dealer, bank or insurer before deciding. Sections cited are from the Income-tax Act, 2025, which applies from 1 April 2026; forms, due dates and rates are prescribed separately, so confirm the current position with your tax adviser or the department before acting.