Retention money is a percentage (commonly 5% to 10%) deducted from each running account bill in a construction, fabrication or supply-and-install contract and held by the client as security for due performance and rectification of defects. Under most contracts, part of it is released on completion and the balance at the end of the defect liability period, provided defects have been rectified. It is a debt owed to the contractor from the contractual release date, recoverable with interest if unpaid, and may be replaced by a bank guarantee where the contract allows.
How retention money works in India
Each RA bill is certified by the engineer; the client pays the certified amount less retention (and less any advance recovery, TDS and GST TDS). The retention accumulates in the client's books. On completion, the contractor applies for the completion certificate and release of the first half. After the defect liability period (often 12 months), the contractor applies for the final release with a no-defect certificate. Disputes arise when the client delays certificates, raises defect claims after the period, or simply does not process the release. Government contracts follow CPWD or state PWD conditions; private contracts follow their own terms.
Why it matters for getting paid
Retention is often the contractor's entire profit on a project. Because it is small relative to the contract and paid at the end, clients treat it as negotiable. It is not: from the release date it is a debt, and an MSME contractor can claim Section 16 interest on it from that date. Document the completion and defect-period dates carefully. See RA bill, defect liability period and bank guarantee.
How FundRaksha uses it
FundRaksha's advocates establish the contractual release dates from the completion certificate and DLP, compute interest from those dates and send a notice that treats retention as the debt it is. Where the client raises belated defect claims, the notice puts it to proof. The fee is 30% of the amount recovered; nothing is charged upfront. 700+ businesses have been paid through FundRaksha.
Worked example (hypothetical)
A Hyderabad electrical contractor (small enterprise) completes a ₹2,00,00,000 project; 5% retention, ₹10,00,000, has been deducted across the RA bills. Completion certificate: 1 April 2025; 50% released on 1 May 2025 (₹5,00,000). Defect liability period of 12 months ends 1 April 2026; the contract says the balance is payable within 30 days, so by 1 May 2026. Nothing is paid by 1 November 2026. Assuming a 6.5% bank rate (19.5% a year, monthly rests), Section 16 interest on ₹5,00,000 for six months is about ₹50,800. The notice claims ₹5,50,800 and the client releases the retention within the notice period.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.