TDS Section 194Q: High-Value Purchases, Payment Workflow and Reporting
- Section 194Q applies when a buyer purchases goods worth more than ₹50 lakh from a resident seller in a financial year.
- The buyer must have business turnover or gross receipts above ₹10 crore in the immediately preceding financial year.
- TDS is deducted at 0.1% only on the purchase value exceeding ₹50 lakh.
- From 1 April 2026, the same rule is covered under Section 393 of the Income-tax Act, 2025.
- Section 206C(1H) TCS on sale of goods has been withdrawn from 1 April 2025, so the old TDS vs TCS overlap is no longer relevant for current-year transactions.
- Section 206AB higher TDS for non-filers should not be included for FY 2026-27 because it has been omitted from 1 April 2025.
- For the new Act framework, Form 140 replaces Form 26Q and Form 131 replaces Form 16A.
- TDS is deducted at the earlier of payment or credit in books, so advance payments can also trigger TDS.
This guide explains when Section 194Q applies, how TDS should be calculated, how the FY 2026-27 reporting workflow changes under the Income-tax Act, 2025, and what businesses should check before making high-value purchase payments.
Section 194Q and Section 393: Current Legal Position
Section 194Q of the Income-tax Act, 1961 requires certain business buyers to deduct TDS on the purchase of goods from resident sellers . It applies when purchases from a seller exceed ₹50 lakh in a financial year and the buyer’s turnover or gross receipts from business exceeded ₹10 crore in the immediately preceding financial year.
From 1 April 2026, the Income-tax Act, 2025 applies. Under the new Act, this purchase of goods TDS rule is covered under Section 393, Table Sl. No. 8(ii). The rate remains 0.1%, and TDS continues to apply only on the amount exceeding ₹50 lakh.
The old overlap with Section 206C(1H) is no longer a current-year issue because TCS on sale of goods under Section 206C(1H) has been withdrawn from 1 April 2025.
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When Does TDS on Purchase of Goods Apply?
| Condition | What to check |
|---|---|
| Buyer type | The buyer should be carrying on business. |
| Seller status | The seller should be resident in India. |
| Nature of transaction | The transaction should be for purchase of goods, not a pure service transaction. |
| Seller-wise purchase value | TDS starts only after purchases from the same seller cross ₹50 lakh in the financial year. |
| Deduction base | TDS is deducted only on the amount above ₹50 lakh. |
Condition
What to check
Condition
What to check
Condition
What to check
Condition
What to check
Condition
What to check
First-Year Businesses
If a business is newly incorporated and has no preceding financial year turnover, Section 194Q does not apply in that first year because the previous-year turnover condition cannot be tested.
Seller-Wise Threshold
The ₹50 lakh threshold is not invoice-wise. It is checked seller-wise for the full financial year . Once purchases from a seller cross ₹50 lakh, TDS applies only on the excess amount.
Example
A buyer purchases goods worth ₹80 lakh from one resident seller during the year.
| Particulars | Amount |
|---|---|
| Total purchase value | ₹80,00,000 |
| Threshold not subject to TDS | ₹50,00,000 |
| Amount liable to TDS | ₹30,00,000 |
| TDS at 0.1% | ₹3,000 |
Particulars
Amount
Particulars
Amount
Particulars
Amount
Particulars
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TDS Rate Under Section 194Q
If Seller Does Not Furnish PAN
If the seller does not provide PAN, the rate becomes 5% for this purchase of goods provision under the Income-tax Act, 2025. This is much higher than the normal 0.1% rate, so PAN collection should be part of vendor onboarding , not a last-minute compliance check.
Example
| Purchase value above ₹50 lakh | Normal TDS at 0.1% | TDS if PAN not available at 5% |
|---|---|---|
| ₹20,00,000 | ₹2,000 | ₹1,00,000 |
Purchase value above ₹50 lakh
Normal TDS at 0.1%
TDS if PAN not available at 5%
When Should TDS Be Deducted?
TDS must be deducted at the earlier of these two events:
- When the amount is credited to the seller’s account in the buyer’s books
- When payment is made by cash, cheque, bank transfer, digital mode or any other mode
This means TDS can apply even before the invoice is fully settled if the book entry or advance payment has already triggered the deduction point. Do not wait for delivery or invoice booking if the payment itself has crossed the threshold.
Advance Payment Example
A buyer pays an advance of ₹60 lakh to a resident supplier in February for goods to be delivered in April.
| Particulars | Treatment |
|---|---|
| Advance paid | ₹60,00,000 |
| Threshold | ₹50,00,000 |
| Amount liable to TDS | ₹10,00,000 |
| TDS at 0.1% | ₹1,000 |
| Deduction month | February, because payment happened then |
Particulars
Treatment
Particulars
Treatment
Particulars
Treatment
Particulars
Treatment
Particulars
Treatment
How to Calculate TDS Under Section 194Q
Multi-Invoice Example
A practical control is to create an internal alert when purchases from a seller reach around ₹45 lakh. This gives the accounts team time to verify PAN, contract type, GST treatment and deduction settings before the ₹50 lakh threshold is crossed.
| Invoice No. | Invoice Value | Cumulative Purchase | TDS Treatment | TDS Amount |
|---|---|---|---|---|
| 1 | ₹15,00,000 | ₹15,00,000 | No TDS | Nil |
| 2 | ₹12,00,000 | ₹27,00,000 | No TDS | Nil |
| 3 | ₹14,00,000 | ₹41,00,000 | No TDS | Nil |
| 4 | ₹12,00,000 | ₹53,00,000 | TDS on ₹3,00,000 | ₹300 |
| 5 | ₹10,00,000 | ₹63,00,000 | TDS on full ₹10,00,000 | ₹1,000 |
Invoice No.
Invoice Value
Cumulative Purchase
TDS Treatment
TDS Amount
Invoice No.
Invoice Value
Cumulative Purchase
TDS Treatment
TDS Amount
Invoice No.
Invoice Value
Cumulative Purchase
TDS Treatment
TDS Amount
Invoice No.
Invoice Value
Cumulative Purchase
TDS Treatment
TDS Amount
Invoice No.
Invoice Value
Cumulative Purchase
TDS Treatment
TDS Amount
GST Component and Purchase Returns
GST Component
GST should not be handled with a blanket rule. The Income Tax Department guidance says that if GST or other non-GST levies are separately indicated and TDS is deducted at the time of credit, TDS may be deducted on the amount excluding GST . However, if TDS is deducted on payment because payment is made before credit, the deduction is made on the whole amount because the GST component may not be identifiable at that stage.
| Situation | Safer Treatment |
|---|---|
| Invoice booked first and GST separately shown | Deduct TDS on value excluding GST |
| Advance paid before invoice or credit entry | Deduct TDS on the payment amount |
| GST not separately identifiable | Deduct TDS on the full amount |
Situation
Safer Treatment
Situation
Safer Treatment
Situation
Safer Treatment
Purchase Returns
If goods are returned and the seller refunds the amount, the TDS already deducted may be adjusted against the next purchase from the same seller. If goods are replaced instead of refunded, no adjustment is required.
Payment, Return Filing and Certificate Workflow
After TDS is deducted under Section 194Q or Section 393 , the buyer must deposit it with the government within the prescribed timeline and report it in the quarterly TDS statement. For deductions made from April to February, the deposit is generally due by the 7th of the following month. For TDS deducted in March, the deposit due date is 30 April.
For periods covered by the Income-tax Act, 1961, the buyer reports the deduction in Form 26Q. From 1 April 2026 onward, under the Income-tax Act, 2025 framework, the corresponding quarterly non-salary TDS statement is Form 140. The quarterly filing due dates remain 31 July for Q1, 31 October for Q2, 31 January for Q3 and 31 May for Q4.
After filing the TDS statement, the buyer must issue the TDS certificate to the seller. For old Act periods, this certificate is Form 16A. Under the new Act framework, the corresponding certificate is Form 131. It should be issued quarterly within 15 days from the due date of filing Form 140 .
Special Cases Businesses Should Check Carefully
E-Commerce Purchases
If a transaction is covered by both Section 194-O and Section 194Q, the official guidance says Section 194-O applies first. If the e-commerce operator fails to deduct under Section 194-O, the buyer may need to deduct under Section 194Q.
Imports and Non-Resident Sellers
Section 194Q applies to purchases from resident sellers. Import purchases from non-resident sellers generally do not fall under this provision, though other tax provisions may need to be checked depending on the transaction.
Works Contracts and Mixed Contracts
If a contract includes both goods and services, do not base your decision solely on the invoice wording. Check the real nature of the transaction. If the transaction is already covered under another TDS provision , Section 194Q should not apply. The new Act also states that the purchase-of-goods entry does not apply where tax is deductible or collectible under another provision.
Software, SaaS and Licences
Review the contract, licence terms, delivery model, support element and whether any royalty or technical service characterization is possible. For high-value software or SaaS contracts , get a CA or tax advisor’s view before applying Section 194Q.
Lower or Nil Deduction Certificate
For old Act references, sellers may apply for a lower or nil deduction certificate under Section 197. Under the Income-tax Act, 2025, the equivalent provision is Section 395(1). Once a valid certificate is issued, the buyer should deduct tax at the rate specified in the certificate, or not deduct tax if the certificate permits a nil deduction.
Penalties and Consequences of Non-Compliance
Interest
If TDS is not deducted, interest applies at 1% per month or part of a month. If TDS is deducted but not deposited , interest applies at 1.5% per month or part of a month. These rates are carried into the new Act framework under Section 398.
30% Expense Disallowance
Under the old Act, this is commonly linked to Section 40(a)(ia). Under the Income-tax Act, 2025, the corresponding rule is under Section 35(b)(i), which disallows 30% of certain sums payable to a resident if required TDS is not deducted or not paid within the due date.
Example: A buyer purchases goods worth ₹1 crore from a seller during the year. TDS should have been deducted on ₹50 lakh, so the TDS amount is ₹5,000. If the buyer fails to comply with TDS, 30% of the relevant purchase amount may be disallowed, resulting in a much larger tax impact than the TDS amount itself.
| Particulars | Amount |
|---|---|
| Purchase value | ₹1,00,00,000 |
| TDS threshold | ₹50,00,000 |
| Amount liable to TDS | ₹50,00,000 |
| TDS at 0.1% | ₹5,000 |
| 30% disallowance exposure | ₹30,00,000 |
| Extra tax impact at 25% assumed tax rate | ₹7,50,000 |
Particulars
Amount
Particulars
Amount
Particulars
Amount
Particulars
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The assumed tax rate is only for illustration. Actual impact depends on the taxpayer’s applicable rate, surcharge, cess and facts of the case. The disallowance amount and its base, whether the full purchase value or only the TDS-triggering portion, may depend on the applicable legal interpretation and facts.
Late Filing and Incorrect Statement
Late filing of TDS statements can attract a fee of ₹200 per day under Section 234E, subject to the TDS amount. Penalties may also apply for incorrect or delayed statements.
Section 194Q Compliance Checklist
Before vendor payments
- Check whether the vendor is correctly classified as a resident seller of goods.
- Review the vendor’s cumulative purchase value before approving payment.
- Confirm whether the transaction is a goods purchase, service contract, works contract, import, software arrangement, or e-commerce purchase.
- Verify the vendor PAN in the master record.
- Check whether the seller has submitted a valid lower- or nil-deduction certificate.
- For advance payments, confirm whether TDS needs to be deducted before booking the invoice.
Before quarterly filing
- Reconcile the TDS deducted in books with the tax deposited.
- Match challan details, vendor PAN, and deduction amounts before filing.
- Use the applicable quarterly TDS statement and certificate format for the relevant tax year.
- Review credit notes, purchase returns, and refunds for any TDS adjustment.
- Keep supporting records for vendor classification, threshold tracking, PAN verification and deduction calculation.
Conclusion
Section 194Q has a low TDS rate of 0.1%, but compliance needs careful tracking. Buyers must monitor seller-wise purchase limits, advance payments, PAN details, GST treatment, purchase returns, and quarterly reporting without missing any deduction trigger.
For the current-year workflow, Form 140 replaces Form 26Q, Form 131 replaces Form 16A, Section 395(1) replaces the lower or nil deduction certificate reference, and Section 206AB should be removed.
To manage this smoothly, set up vendor masters, PAN details, purchase thresholds, and TDS reports in BUSY Accounting Software before the first quarter filing cycle begins. This helps accounts teams track seller-wise limits, deduction points, and quarterly reporting in a more systematic way.
