The GST and TDS Clauses Every Indian Contract Needs, With Sample Wording
Five tax-related clauses decide whether an Indian contract costs what the parties think it does: GST treatment, invoicing conditions, TDS, the 180-day input-credit rule and rate-change allocation. Sample wording for each and the mistakes that produce disputes at the first invoice.
Price negotiations end with a number. In India the number is only the start, because GST, withholding tax and payment timing change what each side actually receives. Contracts that leave these to "as per applicable law" produce the same argument at the first invoice: is the fee inclusive, who bears the TDS, and why has the credit been reversed. This guide gives five clauses with wording that settle each question. Position as of October 2026.
1. GST: exclusive, and conditioned on a compliant invoice
State that fees are exclusive of GST, that the supplier will charge GST at the applicable rate, and that payment of the GST component is conditional on a tax-compliant invoice (and, where the supplier's turnover requires it, an e-invoice with IRN; the threshold is aggregate turnover above Rs 5 crore in any financial year from 2017-18, under Notification No. 10/2023-Central Tax, effective 1 August 2023).
"All fees are exclusive of GST. The Supplier will charge GST at the rate applicable on the date of supply and issue a tax invoice compliant with the CGST Act, 2017 and rules, including an e-invoice where applicable. The Customer's obligation to pay the GST component arises on receipt of a compliant invoice."
2. Input credit protection: the 180-day rule and supplier filing
Under the second proviso to section 16(2) of the CGST Act, 2017, a recipient who has not paid the supplier within 180 days of the invoice must reverse the input tax credit with interest. Separately, the recipient's credit depends on the supplier having reported the supply and paid the tax. Allocate both risks.
"The Customer will pay each undisputed invoice within [45] days. The Supplier will report each supply in its returns and pay the tax so that the Customer's input tax credit is available; if credit is denied or reversed because of the Supplier's failure, the Supplier will reimburse the Customer the amount of credit lost, with interest and penalty."
3. TDS: section, rate, certificate, no gross-up
Name the section the parties consider applicable (section 194J for professional or technical services, 10% or 2%, threshold Rs 50,000 a year from 1 April 2025; section 194C for works contracts; section 194Q for purchase of goods above the threshold), state that the payer will deduct and issue the certificate, and say whether fees are grossed up.
"The Customer will deduct tax at source as required by the Income-tax Act, 1961 (the parties consider section [194J] applicable) and issue the TDS certificate within the statutory time. Fees are not grossed up for TDS. The Supplier will provide its PAN and, where applicable, a lower-deduction certificate."
4. MSE payment terms
If the supplier is a registered micro or small enterprise, section 15 of the MSMED Act, 2006 caps the agreed payment period at 45 days from acceptance; interest under section 16 accrues on delay; and the payer's income-tax deduction depends on timely payment under section 43B(h). A payment clause longer than 45 days with an MSE supplier is a drafting error with a tax cost.
"Where the Supplier is a micro or small enterprise under the MSMED Act, 2006, the Customer will pay within the period permitted by section 15 of that Act notwithstanding any longer period stated above."
5. Rate changes and change in law
Say who bears a change in the GST rate or a new levy after signing. Under the CGST Act the rate applicable is determined by the time of supply, so a rate change affects supplies after the change regardless of the contract; the clause decides whether the price adjusts.
"If the rate of GST or any other indirect tax applicable to the supplies changes after the Effective Date, the fees exclusive of tax remain unchanged and the Customer bears the tax at the new rate. Any new tax, cess or levy imposed on the supplies after the Effective Date will be borne by [the Customer / the parties equally]."
For cross-border contracts, add a withholding clause for payments to non-residents under section 195 and, where a tax treaty applies, the documents required (tax residency certificate, Form 10F).
Common mistakes
- "Rs 10 lakh inclusive of all taxes" on a services contract, which leaves the supplier absorbing GST and the customer arguing about TDS.
- No invoice condition, so a defective invoice is paid and the credit is lost.
- 60-day payment terms with an MSE supplier.
- TDS deducted under the wrong section, producing a mismatch for the supplier.
- Silence on rate changes, followed by a dispute when the rate moves.
Make the clauses automatic
Capture at intake: supplier's GST registration and e-invoice applicability; PAN; MSE status (Udyam number); the TDS section finance considers applicable; place of supply. With those five fields the right clauses populate the template and the payment term is capped correctly without anyone remembering.
Where Legatio fits. Legatio holds the five clauses as blocks driven by intake fields, so the GST, TDS and MSE terms are correct on every contract, and tracks invoice dates against the 45-day and 180-day rules. The tax positions are for your finance team and adviser.
Position stated as of October 2026. General information, not tax advice.