Published on Jul 28, 2026
TDS on the purchase of goods and Section 194Q of the Income Tax Act are terms every large buyer in India needs to understand. Introduced via the Finance Act 2021 and effective from 1 July 2021, this section places the responsibility of TDS deduction on the buyer, not the seller. Any business with significant purchase volumes from resident suppliers must check whether Section 194Q applies to them. Getting it wrong means interest, penalties, and potential disallowance of expenses.
Under the Income Tax Act, Section 194Q’s meaning relates to a buyer who is responsible for making payment to a resident seller for the purchase of goods and must deduct TDS at 0.1% on the amount exceeding Rs. 50 lakhs in a financial year. This requirement is also referred to as TDS deduction on purchase transactions.
The provision was introduced to widen tax compliance coverage and bring large-value goods transactions under the TDS framework. Prior to Section 194Q, only sellers were required to collect Tax Collected at Source (TCS) under Section 206C(1H). Section 194Q introduced a corresponding TDS obligation for eligible buyers.
Section 194Q came into effect with the primary aim of curbing tax evasion practices and bringing high-volume transactions within the scope of TDS. CBDT introduced this provision, which helps create an audit trail by requiring eligible buyers to deduct TDS on specified purchases of goods. The purpose of Section 194Q is to reduce the risk of underreporting income by sellers and to improve overall tax compliance across supply chains.
Who is liable under Section 194Q depends on three conditions being met:
If all three conditions are satisfied, the Section 194Q applicability criteria are met, and the buyer must deduct TDS.
Buyer TDS under Section 194Q is the responsibility of any entity whose total sales, gross receipts, or turnover exceeded Rs. 10 crore in the immediately preceding financial year. The buyer may be a company, partnership firm, LLP, individuals subject to tax audit, or any other eligible entity purchasing goods from a resident seller.
Section 194Q example: Company A had a turnover of Rs. 15 crore in FY 2023–24. In FY 2024–25, it purchases goods worth Rs. 80 lakhs from Supplier B, a resident seller. Since Company A's turnover exceeds Rs. 10 crore and its purchases from Supplier B exceed Rs. 50 lakhs, Company A must deduct TDS under Section 194Q on Rs. 30 lakhs, which is the amount exceeding the threshold. At a TDS rate of 0.1%, the TDS liability would be Rs. 3,000.
The Section 194Q turnover limit for the buyer is Rs. 10 crore in the preceding financial year. This is based on total sales or gross receipts, and GST is excluded from this calculation of the turnover threshold for Section 194Q. If your business crossed Rs. 10 crore in turnover even once in the prior year, Section 194Q applies to your purchases in the current year.
Example: If your FY 2023–24 turnover was Rs. 11 crore (excluding GST), you must check all purchase transactions in FY 2024–25 for Section 194Q compliance.
The Section 194Q threshold for purchase is Rs. 50 lakhs per seller per financial year. The purchase of goods TDS does not apply to the first Rs. 50 lakhs purchased from any single seller. Only the amount above this Section 194Q purchase limit triggers the obligation.
This threshold for TDS deduction under 194Q is per seller, not cumulative across all vendors. If you buy Rs. 40 lakhs each from two different suppliers, neither transaction attracts Section 194Q, even though the total is Rs. 80 lakhs.
The Section 194Q TDS rate is 0.1% on the amount exceeding Rs. 50 lakhs, provided the seller furnishes a valid PAN. This is the standard Sec 194Q TDS rate and is significantly lower than many other TDS provisions.
If the seller does not provide PAN, the TDS rate equivalent under Section 206AA kicks in, raising the rate to 5%. This five-fold increase in the TDS deduction under Section 194Q can affect both cash flow and vendor relationships.
|
Seller Situation |
Applicable TDS Rate |
|
PAN provided |
0.1% on amounts exceeding Rs. 50 lakhs |
|
PAN not provided |
5% on amounts exceeding Rs. 50 lakhs |
|
Non-resident seller |
Section 194Q does not apply |
|
Transaction covered by another TDS section |
Section 194Q may not apply, subject to the prevailing tax laws |
TDS 194Q must be deducted at the earlier of:
In cases of advance payment, immediate TDS deduction is essential. The timing of the TDS deduction rule is critical for Section 194Q compliance.
Scenario 1:
A manufacturing firm with Rs. 12 crore turnover in FY 2024–25 buys goods worth Rs. 90 lakhs (including GST of Rs. 16.2 lakhs) from a resident supplier in FY 2025–26.
Section 194Q calculation:
Scenario 2:
The same buyer purchases Rs. 55 lakhs from a different supplier who has not provided a PAN.
|
Purchase Value (Rs.) |
Threshold (Rs.) |
Taxable Amount (Rs.) |
TDS Rate |
TDS Deducted (Rs.) |
|
60 lakhs |
50 lakhs |
10 lakhs |
0.1% |
1,000 |
|
90 lakhs |
50 lakhs |
40 lakhs |
0.1% |
4,000 |
|
55 lakhs (no PAN) |
50 lakhs |
5 lakhs |
5% |
25,000 |
|
45 lakhs |
50 lakhs |
Nil |
N/A |
Nil |
*These calculations are for illustrative purposes only.
The non-applicability of Section 194Q covers the following situations:
The difference between 194Q and 206C(1H) was one of the most common points of confusion for finance teams. Both provisions covered the same transactions but from opposite directions.
|
Factor |
Section 194Q |
Section 206C(1H) |
|
Obligation on |
Buyer |
Seller |
|
Applicable when |
Buyer's turnover exceeds Rs. 10 crore |
Seller's turnover exceeds Rs. 10 crore |
|
Rate |
0.1% (or 5% if no PAN) |
0.1% (or 1% if no PAN) |
|
Transaction threshold |
Rs. 50 lakhs per seller |
Rs. 50 lakhs per buyer |
Note that Section 206C(1H) has been removed, effective April 1, 2025. Sellers no longer have to collect TCS on the sale of goods.
Section 194-O requires e-commerce operators to deduct TDS at 1% on payments made to e-commerce participants. If a transaction is already covered under Section 194-O, Section 194Q does not apply separately. There is no double deduction.
Section 194Q compliance involves the following obligations for every eligible buyer:
|
Activity |
Due Date |
|
Monthly TDS deposit (April to February) |
7th of the following month |
|
TDS deposit for March |
30th April |
|
Form 26Q filing (Q1: April to June) |
31st July |
|
Form 26Q filing (Q2: July to September) |
31st October |
|
Form 26Q filing (Q3: October to December) |
31st January |
|
Form 26Q filing (Q4: January to March) |
31st May |
The Section 194Q due dates for TDS deposit and quarterly return filing should be followed carefully to avoid interest, late filing fees, and other penalties under the Income Tax Act.
Failure to comply can result in the following Section 194Q penalties:
The following are the Section 194Q mistakes to be aware of:
Although the Income Tax Act does not prescribe a specific format for a Section 194Q declaration, it should clearly communicate the buyer's obligation to deduct TDS under the provision.
The declaration typically includes the buyer's name, PAN, and organisation details (where applicable), along with a confirmation that the turnover in the preceding financial year exceeded Rs. 10 crore. It may also contain an optional indemnity clause to address any consequences arising from incorrect information. Finally, the declaration should be dated and signed by the authorised representative to establish its authenticity and maintain proper documentation.
The business impact of Section 194Q can be seen in both accounting processes and cash flow management. Buyers must implement systems to track cumulative purchases from each seller throughout the financial year and identify when the Rs. 50 lakhs threshold is crossed. TDS deductions temporarily reduce the amount paid to the seller, which may occasionally create friction in vendor relationships, particularly with smaller suppliers that rely on timely cash inflows for working capital.
Businesses managing seasonal purchase cycles or temporary cash flow constraints may consider working capital financing to maintain liquidity while meeting compliance requirements. If your enterprise requires funding support, checking your business loan eligibility can be a useful first step.
You can also use a business loan EMI calculator to estimate monthly repayments and align borrowing with your expected cash flow.
Understanding the 194Q Section requirements helps businesses stay compliant, avoid penalties, and manage vendor transactions more efficiently. Since TDS on the purchase of goods and other tax obligations can also influence cash flow, having access to reliable working capital is important.
To support your enterprise financing needs, SMFG India Credit offers unsecured business loans of up to Rs. 75 lakhs* at competitive interest rates.
Estimate your borrowing capacity using our business loan eligibility calculator and apply online today!
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* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us
Check two things: (1) Did your business turnover exceed Rs. 10 crore in the preceding financial year? (2) Have your purchases from a single resident seller crossed Rs. 50 lakhs in the current year? If both conditions are met, Section 194Q applies to all further purchases from that seller.
Yes. For computing the TDS deduction amount, GST is included in the purchase value. However, GST is excluded when calculating the Rs. 10 crore buyer turnover threshold.
Failure to deduct TDS may result in interest at 1% per month, disallowance of 30% of the related expenditure under Section 40(a)(ia), and other applicable penalties specified under the Income Tax Act.
TDS must be deducted at the earlier of the date of credit of the purchase amount to the seller's account or the date of actual payment.
No. Section 194Q applies only to purchases from resident sellers in India. Import transactions involving non-resident sellers are outside its scope.
Section 194Q requires eligible buyers to deduct TDS on specified purchases of goods. Section 206C(1H), which earlier required sellers to collect TCS on certain sales of goods, was omitted with effect from 1 April 2025.
The buyer is treated as an assessee-in-default. Interest at 1% per month is charged from the date of deductibility to the actual deduction date, plus a possible 30% disallowance of the purchase amount.
Yes. If the seller does not provide PAN, the TDS rate jumps from 0.1% to 5% under Section 206AA. Always collect and verify the seller's PAN before processing payments.
The 194Q TDS rate of 0.1% does not apply. Instead, TDS is deducted at 5%, significantly increasing the deduction from the seller's payment.
For deductions made between April and February, TDS must be deposited by the 7th of the following month. For deductions made in March, the due date is 30th April.
No. Imports are specifically excluded from Section 194Q since the seller is a non-resident. The provision covers only purchases from resident sellers within India.
Before 1 April 2025, where both provisions could apply, Section 194Q generally took precedence over Section 206C(1H). Since Section 206C(1H) has been omitted, eligible buyers now only need to comply with Section 194Q, where applicable.
Section 194Q of the Income Tax Act requires eligible buyers whose turnover exceeded Rs. 10 crore in the immediately preceding financial year to deduct TDS at 0.1% on purchases of goods exceeding Rs. 50 lakhs from a single resident seller during a financial year. It was introduced by the Finance Act, 2021 and came into effect on 1 July 2021.
Yes. A business loan can help bridge temporary cash flow gaps arising from tax payments, vendor obligations, or seasonal working capital needs. Before applying, review eligibility criteria, compare business loan interest rates, and understand associated loan costs to choose a financing option that best supports your business's operational and financial requirements.
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