Zoho Books handles TDS and TCS well, but only if it is configured for the directions the money actually moves — and, since April 2025, for one direction it no longer moves in at all. Most setups handle only the first and then cannot explain the difference against Form 26AS.
The three directions
- TDS you deduct when paying vendors — contractors, professionals, rent, commission, and TDS on the purchase of goods under section 393(1) [Table: Sl. No. 8(ii)] of the Income-tax Act, 2025, the erstwhile section 194Q.
- TCS you collect from customers — which now applies only if you sell one of the nine categories specified in section 394, and most SME clients sell none of them.
- TDS your customers deduct from what they pay you — which is not an expense at all, but an advance tax asset.
Direction 3 is the one that is usually missing, and it is the reason so many Zoho Books files show debtors that will never be collected.
Setting up TDS on purchases
Enable TDS in the tax settings and define a rate for each section you actually use, named so that the person keying the bill can pick it without a rate table beside them — the section number and the nature of payment, not just a percentage. Tag the default section on the vendor master so it is applied automatically rather than remembered.
Zoho then posts the deduction to a TDS payable ledger as bills are recorded. Record the challan payment against that ledger each month so the balance is what you still owe, and reconcile that balance to the quarterly TDS return before you file it. A TDS payable ledger that never moves is a red flag.
The TCS setting you should now switch off
TCS on the sale of goods — the 0.1% collection on receipts above ₹50 lakh under the erstwhile section 206C(1H) — was omitted with effect from 1 April 2025, and it has no counterpart anywhere in the Income-tax Act, 2025. The tax rate record, however, is still sitting in a great many Zoho Books organisations, because nobody went back to deactivate it after the omission. Open the tax rates list and check that before you configure anything else — we set out the full sweep, and what to do if you have collected it since April 2025, in TCS on sale of goods is gone but still switched on.
Leaving it active is not harmless. An invoice that still applies it collects money from a customer under a provision that no longer exists, the balance accumulates in a TCS payable ledger against no corresponding line in Form 27EQ, and the query surfaces at the worst possible moment — when the customer's own auditor asks what the deduction on their purchase invoice is.
Collection at source survives only for the nine categories listed in section 394: alcoholic liquor for human consumption, tendu leaves, timber and other forest produce, scrap, minerals being coal or lignite or iron ore, motor vehicles and notified goods where the consideration exceeds ₹10 lakh, remittances under the LRS exceeding ₹10 lakh, overseas tour programme packages, and the use of a parking lot, toll plaza, mine or quarry. If your client sells none of these, TCS is not a configuration question for them at all.
If your client does sell one of them, check the rate as well as the applicability. The Finance Act, 2026 moved liquor, tendu leaves, scrap and minerals to 2% with effect from 1 April 2026, so a rate carried forward from an older setup will now under-collect. Where TCS genuinely applies, keep it in its own ledger and never net it against TDS — they are different obligations with different returns.
None of this touches the buyer side. TDS on the purchase of goods continues at 0.1% on purchases above ₹50 lakh under section 393(1) [Table: Sl. No. 8(ii)]. The old question of which provision took precedence when a purchase-side deduction and a sale-side collection could both apply to the same transaction no longer arises for goods, because only one of the two is left.
TDS deducted by your customers
When a customer pays you net of TDS, do not write the shortfall off as a discount or leave the invoice part-open. Record the receipt for the net amount and post the deducted tax to a TDS Receivable asset ledger, so the invoice closes fully and the asset stands until you claim it in the return.
The reconciliation nobody does monthly
Your TDS Receivable ledger should agree to Form 26AS and to the AIS. Do this quarterly, not at the time of filing the income tax return — a deductor who has quoted the wrong PAN or filed late can still be chased in July, but not in December.
- TDS Receivable per books vs Form 26AS — chase the differences with the deductor.
- TDS payable per books vs the challans paid and the quarterly return filed.
- TCS collected, where one of the section 394 categories genuinely applies, vs Form 27EQ — and nil, for everyone else.
- Interest on any late deposit, provided for and not forgotten.
Rates, thresholds and the sections in force change with every Finance Act. Treat the workflow above as the durable part and verify the current rates and applicability for your assessment year.
We reconcile this for clients every quarter — see the AIS and Form 26AS reconciliation guide, our income tax service, or the compliance calendar for TDS return due dates.
KC Shah & Associates practice note: configuring Zoho Books for TDS you deduct on purchases and TDS your customers deduct from your receipts, why the TCS-on-goods rate still sitting in most orgs should now be switched off, and how to reconcile the rest against Form 26AS and the AIS.
