Tax
Why your client paid less: withholding tax, fees and short payments
Less money arrived than the invoice said? The usual reasons, from bank fees to withholding tax and India's TDS, and what to do about each.
29 Sep 2026 · 6 min read
You sent an invoice for €3,000. The client paid €2,965. Nobody said anything, and now the invoice sits there, a little short. Before you send a reminder, work out why. Most short payments have a simple reason, and each one has a simple fix. Chasing the wrong one just makes an awkward conversation.
The usual reasons
1. Bank or card fees
The most common reason on payments from abroad. Banks along the way can each take a fee, and card or wallet services keep a share of the amount. A change of currency adds a small exchange margin too. The gap is usually small and not a round number. More on this in our guide to billing clients abroad.
What to do: check the bank's advice or the payment service's receipt. If it is fees, decide whether to absorb them or ask the client to cover them next time. Many businesses just write small ones off.
2. Withholding tax
In some countries, a business paying for certain services must keep back part of the payment as tax and pay it to its own tax office in your name. This is called withholding tax. It happens inside some countries, like TDS in India, and often on payments across borders, for things like fees, royalties or technical services. Whether it applies, and how much, depends on the country, the kind of service and any tax treaty between the two countries.
What to do: ask the client which tax they kept back and for the certificate or receipt showing it was paid. It is usually not lost money: you may be able to count it against your own tax, but only with that proof. Ask your accountant how it works for you.
3. A disputed line
The client paid everything except one item they are not happy with, or think they did not order. The gap matches a line on the invoice.
What to do: ask about it directly and politely. If they are right, issue a credit note for that line. If not, explain, and keep that amount open until it is settled.
4. A part payment
The client paid what they could now and plans to pay the rest later. The gap is often a round number, or half of the invoice.
What to do: record what arrived as a part payment, thank them, and agree a date for the rest. Then remind them on that date.
5. A discount they took
Some clients take an early payment discount, or a discount they believe was agreed. Check your quote and emails first.
What to do: if you did agree it, close the gap with a credit note. If you did not, say so kindly, and ask for the balance.
Whatever the reason, the same four steps
- Ask for the reason, or the certificate. A short, friendly message usually gets an answer the same day.
- Record what actually arrived. Never mark the invoice paid in full when it was not.
- Keep the gap visible. Leave the rest as due until you decide what it is, so it does not quietly disappear.
- Close it properly. When you agree to write off the gap, issue a credit note against the invoice. Do not edit the invoice itself, so your records and the client's still agree.
Bank fees are sometimes recorded as a cost rather than a credit note. Ask your accountant which way they prefer, and do it the same way each time.
In India: TDS
In India, a short payment from a business client is very often TDS, tax deducted at source. For some payments, the payer keeps back a small part and pays it to the government against your PAN. It is an advance on your income tax, so the client is not underpaying: most goes to your bank and a slice to the government for you.
| Section | Covers | Common rate |
|---|---|---|
| 194J | Fees for professional or technical services | Commonly 10% for professional services, 2% for technical services and some others |
| 194C | Payments to contractors | 1% or 2%, depending on who the contractor is |
TDS applies only above certain limits, and only some payers must deduct it. Rates, limits and who deducts all change from time to time. Also, a new Income-tax Act, 2025 takes the place of the 1961 Act from 1 April 2026 and gives these rules new section numbers, though many people still use the old ones. Check the current rates and references with your CA.
When GST is shown separately, TDS is usually worked out on the amount before GST. On a ₹35,282 invoice with ₹29,900 before GST, 2% TDS is ₹598, so ₹34,684 arrives. A gap of about 1%, 2% or 10% of the amount before GST is probably TDS.
Do not issue a credit note for TDS. Record the payment in two parts, the amount received and the TDS, which together settle the invoice. Check the TDS in Form 26AS and AIS on the income tax portal once your client files their quarterly TDS return, and ask them for Form 16A, the TDS certificate. It counts against your income tax. Some government bodies also deduct a separate TDS under GST, which is claimed on the GST portal instead.
Before you send a reminder
Check the gap first. Asking for money that went on fees or tax is awkward for both sides. If it does not fit any reason above, a polite note asking for the payment reference usually sorts it out. Our payment reminder messages have wording that stays friendly.
The short version
- Short payments are usually fees, withholding tax, a disputed line, a part payment or a discount.
- Ask for the reason, or for the tax certificate if tax was kept back.
- Record what arrived and keep the gap visible until you decide.
- Close an agreed gap with a credit note, never by editing the invoice.
- In India, a gap of 1%, 2% or 10% of the amount before GST is probably TDS: record it as TDS, not a credit note.
- Tax rules and rates change. Check yours with your accountant or CA.