TDS Under Section 194Q on Purchase of Goods: Buyer Guide

If your business had sales, gross receipts or turnover above Rs 10 crore in the financial year just gone, Section 194Q of the Income-tax Act, 1961 makes you deduct TDS at 0.1% when you buy goods worth more than Rs 50 lakh in a year from a single resident seller. The tax applies only to the amount above Rs 50 lakh, and you deduct it at the time you pay the seller or credit the amount in your books, whichever happens first.

This rule has been in force since 1 July 2021. It shifts a small slice of tax collection onto large buyers, and it changes how big buyers and their sellers handle invoices. This guide explains who must deduct, when, how much, and how it fits with the related TCS rule under Section 206C(1H).

You are a “buyer” for this section only if your total sales, gross receipts or turnover from your business crossed Rs 10 crore in the immediately preceding financial year. A small trader or an individual buying for personal use is not covered.

If you clear that turnover bar, you must deduct TDS when both of these are true:

• You buy goods (not services) from a resident seller, and
• Your total purchases from that seller in the financial year cross Rs 50 lakh.

The Rs 50 lakh is counted per seller, across the whole financial year. Once you cross it with a given seller, every further rupee paid to that seller for goods carries TDS.

The rate is 0.1%, and it applies only to the part of your purchases that is above Rs 50 lakh from that seller in the year. You do not deduct on the first Rs 50 lakh.

• Normal rate: 0.1% of the amount exceeding Rs 50 lakh.
• If the seller has not given you a PAN: the rate rises to 5% under Section 206AA read with Section 194Q.

So a seller who refuses or fails to share a PAN ends up taxed fifty times harder. In practice this gives buyers a strong reason to collect PAN before crossing the threshold.

Section 194Q says you deduct at the time of credit of the amount to the seller's account, or at the time of payment, whichever is earlier. That means an advance payment can trigger TDS even before the goods arrive.

The basic compliance steps after deduction:

1. Deduct the TDS at the correct moment (credit or payment, whichever is earlier).
2. Deposit the deducted tax with the government by the due date.
3. File your quarterly TDS return reporting the deduction.
4. Issue Form 16A to the seller as proof of the TDS, so the seller can claim credit.

This is where buyers and sellers get confused. Section 206C(1H) asks the seller to collect TCS at 0.1% on sale of goods above Rs 50 lakh, where the seller's turnover crossed Rs 10 crore. Section 194Q asks the buyer to deduct TDS on much the same kind of transaction.

A single sale can fall under both. The law and CBDT Circular No. 13 of 2021 fix the order of priority:

• Where Section 194Q applies, the buyer deducts TDS, and the seller does NOT also collect TCS under 206C(1H) on that transaction.
• In short, 194Q takes priority over 206C(1H). The buyer's duty comes first.

So if you are a large buyer and you deduct TDS under 194Q, you should tell your seller, so the seller does not collect TCS on the same invoice and tax the buyer twice.

Section 194Q does not apply to:

• A transaction where tax is already deductible under any other TDS provision of the Act.
• A transaction where tax is collectible under Section 206C, other than 206C(1H).
• Import of goods from outside India, or purchases from a non-resident seller (those follow Section 195 and other rules, not 194Q).

The section targets domestic purchases of goods between resident parties at scale. It is not a tax on services and not a tax on imports.

Picture a Pune auto-parts distributor (an illustration, not a real firm) whose turnover last year was Rs 14 crore. This year it buys components worth Rs 80 lakh from one resident supplier who has shared a valid PAN.

• Purchases cross Rs 50 lakh, so 194Q kicks in.
• TDS applies on Rs 80 lakh minus Rs 50 lakh = Rs 30 lakh.
• TDS at 0.1% of Rs 30 lakh = Rs 3,000.

The distributor deducts Rs 3,000 when it pays or credits the amount, deposits it, files the return, and gives the supplier Form 16A. Because the buyer deducts under 194Q, the supplier does not collect TCS on the same sale.

No. Section 194Q covers the purchase of goods only. Payments for services are handled by other TDS sections, such as those for professional fees, contracts or commission. If those apply, 194Q is excluded.

Only on the excess. You ignore the first Rs 50 lakh of purchases from a seller in the year and deduct 0.1% on every rupee above that. So Rs 70 lakh of purchases means TDS on Rs 20 lakh.

The rate jumps from 0.1% to 5% under Section 206AA. Collecting the seller's PAN before you cross the threshold is the simplest way to avoid the higher rate.

The buyer acts. Section 194Q takes priority, the buyer deducts TDS, and the seller does not collect TCS under 206C(1H) on that transaction. Tell your seller you are deducting so they do not collect as well.

No. Buying goods from outside India or from a non-resident seller is outside 194Q. Those payments are governed by Section 195 and related provisions, not this section.

If you run a business near the Rs 10 crore turnover line, check last year's audited turnover first, then map your top suppliers and see which ones you will cross Rs 50 lakh with this year. Collect PANs early, set up your accounting to flag the threshold, and confirm with each large seller whether you (194Q) or they (206C(1H)) will handle the tax, so nobody gets taxed twice.

For your wider rights to ask the government for records, rules and clarifications, see The RTI Playbook and the free filing tools at righttoinformation.wiki/tools. You can also start from the RTI Wiki homepage.

This guide explains the law under the Income-tax Act, 1961 as it stands for current filings. It is general information, not tax advice; for a specific transaction, confirm with a qualified chartered accountant or tax professional.