TDS On Purchase Of Goods Section 194Q: Rates, Thresholds, And Deadlines 2026

Key Takeaways

Section 194Q applies when the buyer’s preceding-year turnover exceeded ₹10 crore, and TDS must be deducted at the earlier of credit or payment to a resident seller.
The ₹50 lakh threshold is cumulative per seller per financial year, counted from 1 April, and TDS applies only on the amount exceeding ₹50 lakh.
Missing deduction or late deposit can trigger 30% disallowance of related purchase expenditure under Section 40(a)(ia), plus interest under Section 201(1A).
No-PAN or non-filer sellers face higher TDS rates: 5% under Section 206AA, and under Section 206AB the rate is double or 5%, whichever is higher.
When 194Q applies, the seller should not collect TCS under 206C(1H); CBDT Circular 13/2021 confirms 194Q takes precedence, so communicate this to vendors in writing.

Section 194Q On Purchase Of Goods: The Short Answer

If your turnover crossed ₹10 crore last year and you skipped Section 194Q, the Income Tax Department can disallow 30% of that purchase expenditure under Section 40(a)(ia). That is a direct hit to taxable profit.

Section 194Q of the Income-tax Act, 1961 places a buyer-side TDS obligation on purchases of goods from resident sellers, effective 1 July 2021, governed by Section 194Q of the Income-tax Act, 1961 and clarified by CBDT Circular 13/2021 dated 30 June 2021.

Who deducts — Buyer with preceding-FY turnover > ₹10 crore
Who it applies to — Resident sellers only
Threshold — Cumulative purchases from one seller exceed ₹50 lakh in the FY
Rate (standard) — 0.1% on the amount exceeding ₹50 lakh
Rate (no PAN) — 5% under Section 206AA
Rate (non-filer seller) — Higher of 5% or double the 194Q rate under Section 206AB
Deduction trigger — Earlier of credit to seller’s account or payment
Effective date — 1 July 2021, threshold counted from 1 April of that FY
Overrides — 206C(1H) TCS does not apply if 194Q applies
Source — Section 194Q; CBDT Circular 13/2021 dated 30 June 2021

Count every rupee paid or credited to a resident goods-seller from 1 April, and deduct the moment the running total with that seller crosses ₹50 lakh.

Section 194Q — Who Must Deduct TDS On Purchase Of Goods And When?

Section 194Q creates a buyer-side TDS obligation on purchases of goods from resident sellers, effective 1 July 2021 per CBDT Circular 13/2021. If your business cleared the ₹10 crore turnover mark in the previous financial year, this section is not optional.

The Three Conditions That Switch 194Q On

All three conditions must be true simultaneously for Section 194Q to apply: First, your total sales, gross receipts, or turnover from business in the immediately preceding financial year exceeded ₹10 crore per Section 194Q of the Income-tax Act, 1961. Second, the seller is a resident in India. Third, the cumulative value of goods purchased from that seller in the current financial year crosses ₹50 lakh.

When Do You Deduct — Credit Or Payment?

Deduct at the earlier of two events: credit to the seller’s account in your books, or the actual payment per Section 194Q. Whichever happens first is your trigger.

Does 194Q Cover Capital Goods Too?

Yes. 194Q refers to “purchase of goods” without carving out capital goods. A machine purchase of ₹60 lakh from a resident supplier counts fully toward the threshold per Section 194Q.

Worked Example

Your FY 2025–26 turnover was ₹18 crore. In FY 2026–27, you purchase goods worth ₹70 lakh (excluding GST) from a resident seller with a valid PAN. Threshold crossed at ₹50 lakh. TDS applies on the excess: ₹20 lakh. TDS = 0.1% × ₹20 lakh = ₹2,000.

Frequently Asked Questions About Who Must Deduct Section 194Q TDS

Does Section 194Q apply if my turnover was ₹10 crore exactly, not above it?
No. The section requires turnover to exceed ₹10 crore in the preceding financial year. If your FY 2025–26 turnover was exactly ₹10 crore, 194Q does not apply to FY 2026–27 purchases per Section 194Q.

What if I am a new company with no preceding-year turnover?
194Q does not apply in the first year of operations. Once you have a completed financial year with turnover exceeding ₹10 crore, the obligation kicks in from the following year per Section 194Q.

Do service receipts count toward the ₹10 crore buyer-turnover test?
Yes. The test covers total sales, gross receipts, or turnover from business — including services — per Section 194Q.

What Amount Do You Deduct On? Threshold, Base, And Rate

The 0.1% rate is simple, but the base depends on whether GST is shown separately, whether you are paying in advance, and whether the seller has a valid PAN.

GST Component: Include Or Exclude?

When GST is shown separately on the invoice, exclude it from the TDS base per CBDT Circular 13/2021. If you pay an advance before the invoice and cannot identify GST, deduct TDS on the full advance and adjust once the invoice arrives.

Threshold Computation: Count From 1 April

Compute the ₹50 lakh threshold from 1 April each financial year, even though 194Q became effective on 1 July 2021 per CBDT Circular 13/2021. The moment the per-seller cumulative crosses ₹50 lakh, apply TDS on each rupee beyond that point.

Worked Example With Mid-Year Threshold Crossing

Purchases from one resident seller (excluding GST): April ₹40 lakh, August ₹25 lakh. Cumulative ₹65 lakh. Threshold crossed at ₹50 lakh. TDS applies on ₹15 lakh, i.e., ₹1,500 at 0.1%.

Higher Rates: No-PAN And Non-Filer Sellers

No PAN: 5% under Section 206AA. Specified person non-filer: higher of 5% or double the rate under Section 206AB. If both apply, use the higher rate.

Consequences Of Getting The Base Wrong

Under-deduction or late deposit exposes you to interest under Section 201(1A) — 1% per month for non-deduction, 1.5% per month for non-deposit — and potential 30% disallowance under Section 40(a)(ia).

Frequently Asked Questions About The 194Q Deduction Base

Should TDS be deducted on the invoice value including GST or excluding GST?
Excluding GST when shown separately per CBDT Circular 13/2021. If GST is not separately identifiable at advance stage, deduct on the full amount and adjust later.

What happens if I cross ₹50 lakh and later receive a credit note dropping me below ₹50 lakh?
No reversal of TDS already deducted per CBDT Circular 13/2021. Adjust the running total for future transactions.

194Q Vs 206C(1H) — Which One Applies And How To Resolve Vendor Pushback

Where both buyer and seller have turnover above ₹10 crore and the transaction exceeds ₹50 lakh, both 194Q (TDS by buyer) and 206C(1H) (TCS by seller) could seem to apply. CBDT Circular 13/2021 makes it clear — 194Q takes precedence.

The Precedence Rule In Plain Terms

If the buyer must deduct under 194Q, the seller should not collect TCS under 206C(1H) on the same transaction. This avoids double levy.

Decision Tree: Which Section Applies?

Does the buyer’s preceding-FY turnover exceed ₹10 crore? If no, 194Q does not apply; the seller may collect 206C(1H) if eligible.
Do cumulative purchases from this resident seller exceed ₹50 lakh in the current FY? If no, 194Q does not apply for now; the seller may collect 206C(1H).
If both conditions are met, 194Q applies. Deduct at 0.1% on the excess above ₹50 lakh. Seller should not collect 206C(1H).

When 194Q Does NOT Apply Despite Buyer Turnover

194Q does not apply where TDS is deductible under another section, or where TCS is collectible under any sub-section of 206C other than (1H) — for example, scrap under 206C(1). Exempt transactions include recognised stock exchange trades, clearing corporation trades, and power exchange transactions per CBDT Circular 13/2021.

Vendor Email: What To Write When A Seller Insists On TCS

State that your company exceeds ₹10 crore turnover, cumulative purchases from them exceed ₹50 lakh, hence you are obligated to deduct under 194Q, and per CBDT Circular No. 13/2021, 194Q overrides 206C(1H). Request reversal of any TCS collected and a corrected invoice.

Frequently Asked Questions About 194Q Vs 206C(1H)

What if the seller already collected TCS under 206C(1H) and I now deduct 194Q?
The seller should reverse and refund the TCS; you must still deduct 194Q. Both parties should rectify returns. 206C(1H) does not substitute the buyer’s TDS obligation.

Does 194Q apply to items covered by 206C(1)?
Where TCS is collectible under 206C sub-sections other than (1H), 194Q does not apply per CBDT Circular 13/2021.

Implementing 194Q In A Tally-Led AP Workflow — The No-Spreadsheet Playbook

The rules are clear; the execution risk lies between invoices, vendor masters, and payment runs. A manual spreadsheet will fail by Q2. Use the monthly cadence below.

Step 1: Fix Vendor Masters Before April 1

Capture and verify PAN for every resident goods vendor. Missing PAN triggers 5% under Section 206AA. Tag non-residents to exclude them from 194Q tracking. Identify “specified persons” under Section 206AB before the year starts.

Step 2: Configure TDS Nature Of Payment In Tally

In Tally Prime, create the TDS Nature of Payment for “Purchase of Goods” mapped to 194Q at 0.1%. Link relevant purchase ledgers. Map GST ledgers to exclude GST from the TDS base when shown separately, consistent with CBDT Circular 13/2021. Auto-apply 5% for no-PAN vendors via 206AA configuration. See setup tips in this guide.

Step 3: Track Per-Vendor Cumulative Purchases From 1 April

You need a live running total of goods purchases (excluding GST) per vendor from 1 April. When a vendor crosses ₹50 lakh, apply TDS automatically. AiA’s AP and bills automation ingests invoices and syncs to Tally, eliminating manual data entry errors.

Step 4: Handle Advances Correctly

Deduct TDS on advances because GST isn’t identifiable yet, per CBDT Circular 13/2021. Adjust once the invoice arrives with GST shown separately.

Step 5: Deposit And File On Time

Deposit TDS by the 7th of the following month, except March where it is 30 April per incometax.gov.in. File Form 26Q by the due dates below:

Q1 — April – June 2026 — 31 July 2026
Q2 — July – September 2026 — 31 October 2026
Q3 — October – December 2026 — 31 January 2027
Q4 — January – March 2027 — 31 May 2027

Use AiA’s vendor spend concentration dashboards for live visibility into vendor totals approaching ₹50 lakh.

Step 6: Reconcile TDS Ledger Monthly

Reconcile TDS payable against vendor-wise deductions before deposit. Ensure the challan equals the month’s 194Q deductions. A one-rupee mismatch can invite a demand notice.

Frequently Asked Questions About Implementing 194Q In Tally

How do I handle a purchase return after TDS was deducted?
No adjustment to TDS already deducted is required per CBDT Circular 13/2021. Reduce the vendor’s cumulative total for future computations.

What is the last date to deposit TDS for March 2027?
Deposit by 30 April 2027 per incometax.gov.in. For other months, deposit by the 7th of the following month. Late deposit attracts 1.5% per month interest under Section 201(1A).

Common Traps And Notices Under 194Q — And How To Avoid Them

Trap 1: Counting The Threshold From The Wrong Date

The threshold is from 1 April each year, not from the effective date or first big invoice. Missing the crossing triggers interest and possible disallowance.

Fix: Reset per-vendor totals on 1 April every year, and track from day one.

Trap 2: Deducting On GST-Inclusive Value

When GST is separately shown, deduct on the value excluding GST per CBDT Circular 13/2021.

Fix: Map GST ledgers so Tally auto-excludes GST from the assessable base.

Trap 3: Not Checking 206AB Status

Deducting at 0.1% for a “specified person” causes under-deduction risk.

Fix: Run 206AB checks via incometax.gov.in and update vendor rates at the start of each FY.

Trap 4: Treating Services As Goods

194Q covers goods only. If a vendor supplies both, include only the goods portion for threshold and deduction.

Fix: Separate goods and services ledgers; link only goods ledgers to 194Q configuration.

Trap 5: Missing Form 26Q Deadlines Or Filing With Errors

Late filing attracts ₹200 per day under Section 234E. PAN mismatches cause credit issues in 26AS.

Fix: Reconcile deductions and validate PANs before each quarterly filing.

Frequently Asked Questions About Common 194Q Traps

My vendor wants a TDS certificate, but I missed deduction earlier. What now?
Deduct and deposit now with 1% per month interest under Section 201(1A), file a corrected 26Q, then issue Form 16A. Do not “adjust” by over-deducting later without depositing the shortfall.

If a vendor supplies goods and services, how do I track the ₹50 lakh threshold?
Only goods count toward 194Q. Maintain separate ledgers and add only goods invoices to the cumulative total. After crossing, deduct on the goods portion only; services may attract TDS under other sections.

Frequently Asked Questions

Does Section 194Q apply to purchases made through an e-commerce marketplace?

194Q applies to purchases of goods from resident sellers where the buyer’s turnover exceeds ₹10 crore. Where the marketplace is required to collect TCS or TDS under other provisions like 206C(1H) or 194-O, those apply and 194Q does not apply to the same transaction per CBDT Circular 13/2021. If the vendor invoices you directly, apply 194Q normally.

What is the penalty if I deduct TDS under 194Q but forget to deposit it?

Interest at 1.5% per month or part thereof under Section 201(1A), plus potential 30% disallowance of purchase expenditure under Section 40(a)(ia) if not deposited within due dates. Late filing fee of ₹200 per day applies to Form 26Q under Section 234E.

Can a buyer apply a lower TDS rate under 194Q based on a certificate?

Yes. If the seller obtains a lower or nil deduction certificate under Section 197, the buyer deducts at that rate. Verify validity, FY coverage, and the specific section mentioned before applying a lower rate.

If my turnover crossed ₹10 crore in FY 2025–26 but drops below ₹10 crore in FY 2026–27, do I still deduct in FY 2026–27?

Yes. The test is the immediately preceding FY per Section 194Q. If FY 2025–26 exceeded ₹10 crore, deduct throughout FY 2026–27.

What happens if both buyer and seller crossed ₹10 crore and the seller already collected TCS before I deducted 194Q?

Per CBDT Circular 13/2021, 194Q overrides 206C(1H). The seller should refund the TCS and rectify returns; you must still deduct and report 194Q.

How do I identify whether a vendor is a “specified person” under Section 206AB in FY 2026–27?

A specified person has not filed returns for both of the two assessment years immediately prior to the current year, and had aggregate TDS/TCS ≥ ₹50,000 in each year per Section 206AB. Verify status via the compliance utility on incometax.gov.in.

Is 194Q applicable on purchases made under a long-term contract signed before 1 July 2021?

Yes. The operative test is the date of credit or payment on or after 1 July 2021, not the contract date, per CBDT Circular 13/2021. If thresholds are met, deduct TDS.

What is the correct TDS treatment when a single invoice crosses the threshold mid-processing?

Only the portion exceeding ₹50 lakh is subject to TDS at 0.1%. For example, if cumulative before the invoice is ₹48 lakh and the invoice is ₹5 lakh (excl. GST), deduct on ₹3 lakh only, i.e., ₹300, per CBDT Circular 13/2021.