Managing Deductions in Transactions
How to set up deduction types in the Deduction Library, apply deductions to transactions, choose the correct amount type, apply multiple deductions on a single transaction, and understand how deductions interact with the Pre-Tax setting.
Before You Start
- You need Admin access to add or edit deduction types in the Deduction Library
- Any role with transaction permissions can apply deductions when creating a transaction
What Are Deductions?
A deduction is an amount subtracted from a transaction’s Total Amount before the final payable (Net Amount) is calculated.
Formula: Total Amount minus Deduction = Net Amount
Common deduction types used in Indian construction:
| Deduction Type | Common Use |
|---|---|
| TDS 1% | Tax Deducted at Source on subcontractor payments (Section 194C) |
| TDS 2% | TDS on contractors and subcontractors |
| TDS 10% | TDS on professional services or rent |
| Royalty | Government royalty on materials like sand, stone, or aggregate |
| Labour Welfare Fund | Statutory contribution deducted from subcontractor bills |
| Advance Recovery | Recovery of a previously paid advance from a bill |
| Food Deduction | Deduction for meals provided by the company to workers |
| Material Recovery | Recovery of materials supplied to a subcontractor from their bill |
Deductions vs Retention
Deductions and retention are separate concepts in Onsite. Understanding the difference prevents incorrect entries.
| Feature | Deduction | Retention |
|---|---|---|
| Purpose | Amounts withheld permanently or recovered (e.g. TDS, royalty, advance recovery) | Amounts withheld temporarily until project completion or defect liability period |
| Due date | No due date — the amount is deducted and done | Has a due date — must be tracked and released later |
| Where it appears | Transaction level, reduces Net Amount | Party balance, in the Client Retention or Subcon Retention column |
| Applies to | Material Purchase, Other Expense, Subcon Bill, Equipment Expense, Sales Invoice | Sales Invoice, Subcon Bill |
Use a deduction for amounts that will not be returned. Use retention for amounts that will be released later. See Managing Retention in Sales Invoices and Subcon Bills for retention guidance.
Where Deductions Can Be Applied
Deductions are available on the following transaction types:
| Transaction Type | Who Uses It |
|---|---|
| Material Purchase | Deducting TDS or royalty from a vendor’s material bill |
| Other Expense | Deducting TDS or advance recovery from a general expense |
| Subcon Bill | Deducting TDS, labour welfare fund, advance recovery, or material recovery from a subcontractor bill |
| Equipment Expense | Deducting TDS from an equipment hire bill |
| Sales Invoice | Deducting advance recovery or other client-agreed deductions from an invoice |
Step 1: Set Up Deduction Types in the Library
Deduction types must be created in the Deduction Library before they can be applied to transactions.
- Click Library in the left sidebar
- Click Deduction Library
- Click + Add Item
- Enter the deduction name (e.g. “TDS 2%”, “Royalty”, “Labour Welfare Fund”, “Advance Recovery”)
- Click Save
The new deduction type appears in the Deduction panel on all transactions immediately.
💡 You can also create a deduction type on the spot while filling in a transaction. Click + Add Deductions inside the Deduction panel during transaction creation. The new type is saved to the Library automatically.
Recommended deduction types to set up for Indian construction:
| Suggested Name | Rate or Type |
|---|---|
| TDS 1% | 1% of item subtotal |
| TDS 2% | 2% of item subtotal |
| TDS 10% | 10% of item subtotal |
| Royalty | Varies by state and material — set as Lumpsum |
| Labour Welfare Fund | Fixed amount per bill — set as Lumpsum |
| Advance Recovery | Varies per bill — set as Lumpsum |
| Food Deduction | Varies — set as Lumpsum or % |
| Material Recovery | Varies per bill — set as Lumpsum |
Step 2: Apply a Deduction to a Transaction
- Open the project and go to the Transaction tab
- Click + Transaction and select the transaction type (e.g. Material Purchase, Subcon Bill, Other Expense)
- Fill in the transaction details: party, items, and amounts
- Scroll down and click + Deduction
- The Deduction panel opens showing all saved deduction types
- Check the checkbox next to the deduction you want to apply
- Enter the amount and select the amount type (see Step 3 below)
- Click Save inside the Deduction panel
- The transaction now shows: Total Amount, Deduction, and Net Amount
- Enter the Paid Amount if settling immediately, then save the transaction
Step 3: Choose the Correct Amount Type
When applying a deduction, select how the amount should be calculated:
| Amount Type | How It Calculates | When to Use |
|---|---|---|
| Lumpsum | A fixed rupee amount entered directly | Royalty, advance recovery, food deduction, labour welfare fund where the exact amount is known |
| % of Total | A percentage of the Total Amount (after GST and additional charges) | TDS on the full bill value |
| % of Item Subtotal | A percentage of the item subtotal before GST and additional charges | TDS calculated on the base value only, as required by tax rules for certain deduction types |
⚠️ TDS in India is typically calculated on the base amount before GST, not the GST-inclusive total. Use % of Item Subtotal for TDS deductions to ensure the correct calculation. Using % of Total will deduct TDS on the GST amount as well, which is incorrect.
Step 4: Applying Multiple Deductions
You can apply more than one deduction to a single transaction.
In the Deduction panel, check multiple deductions and enter the amount and amount type for each. All checked deductions are summed and the total is subtracted from the Total Amount to give the Net Amount.
Example: Subcon Bill of Rs 1,00,000
| Deduction | Amount Type | Amount | Calculated Value |
|---|---|---|---|
| TDS 2% | % of Item Subtotal | 2% | Rs 2,000 |
| Labour Welfare Fund | Lumpsum | — | Rs 500 |
| Advance Recovery | Lumpsum | — | Rs 10,000 |
| Total Deductions | Rs 12,500 | ||
| Net Amount | Rs 87,500 |
Pre-Tax Deduction Setting
By default in Onsite, deductions are subtracted from the Total Amount after tax (GST) has been applied. This is the standard calculation.
If your company’s accounting policy requires deductions to be applied before GST is calculated, enable the Pre-Tax Deduction / Retention toggle in Finance Settings.
| Setting | Calculation Order |
|---|---|
| Pre-Tax OFF (default) | GST is applied first, then deductions are subtracted |
| Pre-Tax ON | Deductions are subtracted first, then GST is applied on the reduced amount |
Only enable Pre-Tax if your CA has specifically advised this. Changing this setting affects all transactions going forward.
See How to Configure Finance Settings for the toggle location and instructions.
Tips
- Set up the Deduction Library before your team starts recording transactions. Going back to add deductions to already-saved transactions is time-consuming.
- Name deductions clearly and consistently. “TDS 2%” is clearer than “TDS” because teams with multiple TDS rates will not know which rate applies when selecting from the dropdown.
- Use % of Item Subtotal for TDS, not % of Total. TDS in India is calculated on the base amount before GST. Using % of Total deducts TDS on the GST portion too, which overstates the deduction.
- Advance Recovery is best set as Lumpsum because the recovery amount varies per bill. Create it as a Lumpsum deduction type and enter the specific amount each time.
- You can add new deduction types directly from within a transaction without going to the Library. This is useful when a new type is needed mid-entry.
- Deductions are permanent. If you need to track an amount that will be returned later (such as retention), use retention instead of a deduction.
If Something Goes Wrong
| Problem | Likely Cause | What to Do |
|---|---|---|
| Deduction type not appearing in the panel | Not added to the Deduction Library | Go to Library, then Deduction Library, and add the type |
| Net Amount not reducing after applying deduction | Deduction not saved inside the panel | Click Save inside the Deduction panel before saving the transaction |
| TDS amount calculating incorrectly | Wrong amount type selected | Change from % of Total to % of Item Subtotal for TDS deductions |
| Cannot edit deduction types | Not an Admin | Ask Admin to update the Deduction Library |
| Deduction panel not appearing on a transaction | That transaction type does not support deductions | Check the supported transaction types table above |
| Multiple deductions summing incorrectly | Entered wrong amount type for one deduction | Re-open the Deduction panel, check each deduction’s amount type and value |
| Pre-Tax deduction affecting all transactions unexpectedly | Pre-Tax toggle was enabled in Finance Settings | Go to Settings, then Finance Settings, and turn off the Pre-Tax Deduction toggle if this was unintentional |