TDS on purchase of goods (Section 194Q): 0.1% above ₹50 lakh

Section 194Q of the 1961 Act requires certain buyers to deduct TDS on purchase of goods from residents. From 1 April 2026 it is an entry in Section 393(1) of the Income-tax Act, 2025. Since the parallel TCS by sellers under Section 206C(1H) was omitted from 1 April 2025, 194Q is now the only provision for such high-value trade.

The conditions

Exclusions

TDS under 194Q does not apply where:

• TDS is deductible under any other provision on the same transaction;
• Transactions in securities and commodities traded through recognised exchanges or clearing corporations;
• Electricity transactions through power exchanges;
• The seller's income is exempt (for example certain government bodies);
• Purchases by a buyer in the year the business starts (no previous-year turnover).

GST and advances

CBDT Circular 13/2021: where TDS is deducted at the time of credit and GST is shown separately, deduct on the value excluding GST. Where deducted on an advance payment, deduct on the whole amount, as GST cannot be separated at that point. Purchase returns: TDS deducted on a purchase later returned may be adjusted against future purchases from the same seller.

Worked example 1

Example: Bharat Steels Pvt Ltd (turnover ₹42 crore in FY 2025-26) buys steel from a dealer in Wazirpur in Tax Year 2026-27:

TDS for August is deposited by 7 September; for October by 7 November.

Worked example 2: advance payment

Example: The same buyer pays an advance of ₹11,80,000 (including GST) in January after crossing ₹50 lakh. TDS = 0.1% × ₹11,80,000 = ₹1,180, because it is deducted on payment and GST cannot be separated.

Year of buyer's turnover

The ₹10 crore test is applied each year on the previous year's turnover. A buyer whose turnover was ₹9.5 crore in FY 2025-26 has no 194Q obligation in Tax Year 2026-27, even if current turnover crosses ₹10 crore. Check every April.

Interaction with other provisions

• If goods are bought through an e-commerce operator who deducts under the e-commerce entry (old 194O), 194Q does not apply.
• Purchase of goods under a works contract may be contract work (194C) – classify carefully.
• Import purchases from non-residents are outside 194Q (resident sellers only).

Seller's perspective

The seller sees the TDS in Form 26AS/AIS and claims credit. Small TDS amounts at 0.1% across many buyers must be reconciled with sales ledgers – a common source of mismatch in tax audits.

Consequences of default

• Interest 1%/1.5% per month.
• 30% of the purchase amount disallowed under 40(a)(ia) until TDS is paid (for resident sellers) – this can be large because purchase values are big.
• Late fee and penalty for statements.

Old vs new references

Cite Section 194Q for FY 2025-26 purchases and the Section 393(1) purchase-of-goods entry for Tax Year 2026-27. See the TDS rate finder.

Common mistakes

• Forgetting to check the previous year's turnover each April.
• Deducting on the first ₹50 lakh as well.
• Deducting on GST at the time of credit.
• Missing purchases recorded under multiple ledgers for the same seller GSTIN/PAN.

Key takeaway

If your turnover crossed ₹10 crore last year, track purchases seller-wise by PAN and deduct 0.1% above ₹50 lakh. The 40(a)(ia) disallowance on large purchase values makes this a high-risk area in tax audits. Our TDS and tax audit teams set up vendor-wise tracking in Tally, Busy or Zoho.