Section 194Q — TDS on
Purchase of Goods
When a buyer must deduct 0.1% TDS on purchase of goods, the Rs 50 lakh threshold, the Rs 10 crore turnover test, the no-PAN 5% rate and what changed after TCS u/s 206C(1H) was withdrawn.
A buyer whose total turnover exceeded Rs 10 crore in the preceding financial year must deduct 0.1% TDS under Section 194Q on purchase of goods from a resident seller, but only on the value that exceeds Rs 50 lakh from that seller in the year. If the seller has not given a PAN, the rate is 5% (Section 206AA). TDS is deducted at credit or payment, whichever is earlier, and applies from 1 July 2021.
Section 194Q — Rate, Threshold & When It Applies
Section 194Q casts the deduction duty on the buyer. Both tests must be met: the buyer must be large enough (turnover test) and the purchase from the single seller must be big enough (Rs 50 lakh threshold). TDS is charged only on the slice above Rs 50 lakh — not on the first Rs 50 lakh.
| Condition | Requirement (FY 2025-26) |
|---|---|
| Who must deduct | Buyer with turnover > Rs 10 crore in the preceding FY |
| When to deduct | Purchase from a single resident seller > Rs 50 lakh in the FY |
| Standard rate | 0.1% on the amount exceeding Rs 50 lakh |
| Seller has no PAN | 5% (Section 206AA) |
| Timing of deduction | At credit to the seller's account or payment — whichever is earlier |
| Applies to | All goods — capital goods, raw material, trading stock, consumables |
| Does NOT apply to | Services, imports, securities/commodities on a recognised exchange |
Effective 1 July 2021. Under the new Income-tax Act, 2025 (AY 2026-27), this provision is re-numbered as Section 393(1); the familiar "194Q" tag remains in common use.
The old 20% non-filer rate under Section 206AB no longer applies — Section 206AB (and 206CCA) were omitted from 1 April 2025 by the Finance Act 2025. So today a seller's non-filing of ITR does not push the 194Q rate higher; only the no-PAN 5% rate under 206AA can apply above the normal 0.1%.
Section 194Q vs Section 206C(1H)
Section 206C(1H) required the seller to collect 0.1% TCS on sale of goods above Rs 50 lakh. It overlapped with 194Q, and the rule was that 194Q took priority — if the buyer deducted TDS, the seller did not collect TCS. That overlap is now history.
The Finance Act 2025 omitted Section 206C(1H) with effect from 1 April 2025. For FY 2025-26 onward, sellers no longer collect TCS on sale of goods — Section 194Q now stands alone for goods transactions. The comparison below is retained for FY 2024-25 and earlier records.
| Feature | 194Q (TDS · buyer) | 206C(1H) (TCS · seller) |
|---|---|---|
| Who acts | Buyer deducts TDS | Seller collects TCS |
| Turnover test | Buyer > Rs 10 crore | Seller > Rs 10 crore |
| Rate | 0.1% | 0.1% |
| Threshold | Purchase > Rs 50L from one seller | Receipts > Rs 50L from one buyer |
| If both applied | 194Q won; seller need not collect TCS | — |
| Return form | Form 26Q | Form 27EQ |
| Status FY 2025-26 | In force | Omitted 1 Apr 2025 |
Not sure whether 194Q applies to your purchases this year? Get a quick TDS position check.
Talk to a TDS Expert →How Much 194Q TDS — a Simple Calculation
A manufacturer (buyer, turnover Rs 40 crore last year) buys goods worth Rs 90 lakh from one supplier during the year. TDS applies only on the amount above Rs 50 lakh.
Seller has PAN (0.1%)
Seller without PAN (5%)
194Q TDS is only on the value above Rs 50 lakh from that seller — here on Rs 40 lakh, not Rs 90 lakh. Collect the seller's PAN before crossing the threshold; missing PAN multiplies the tax 50 times (5% vs 0.1%).
194Q Compliance — Deposit, Return & Penalty
- Deduct 0.1% at credit or payment, whichever is earlier
- Deposit via challan-cum-statement (ITNS 281) by the 7th of the next month
- March deductions: deposit by 30 April
- File TDS return in Form 26Q every quarter (31 Jul, 31 Oct, 31 Jan, 31 May)
- Issue Form 16A to the seller within 15 days of the return due date
- Seller then claims the TDS credit via Form 26AS / AIS in the ITR
Failure to deduct or deposit 194Q TDS attracts interest of 1% / 1.5% per month and disallowance of 30% of the purchase expense under Section 40(a)(ia), plus late-fee under Section 234E for a late return.
Section 194Q — Frequently Asked Questions
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194Q TDS on Purchases — Deducted, Deposited & Filed
From the Rs 10 crore turnover test to Form 26Q filing and Form 16A, TaxClue's CA-led team runs your 194Q TDS compliance end to end — accurate deductions, on-time deposits and clean returns, 100% online across India.