Section 194Q vs 206C(1H): Who Deducts, Buyer or Seller?
If you have ever found yourself in the middle of a high-value B2B goods transaction, with one email from your vendor asking for a TCS declaration and another from your buyer asking for a TDS exemption, you already know the confusion this creates. Both Section 194Q and Section 206C(1H) target the same Rs 50 lakh purchase threshold, and the legislature left it to taxpayers to work out which one applies.
Here is the short version: Section 194Q wins. If the buyer is liable to deduct TDS under Section 194Q, the seller is exempt from collecting TCS under Section 206C(1H). The buyer's TDS obligation takes precedence.
But the rules are not always that simple. This guide breaks down who deducts, who collects, and what happens when both provisions seem to apply.
Short answer: Where both provisions are attracted, the buyer deducts under Section 194Q and the seller skips TCS. And from April 1, 2025 the question is largely historical: Section 206C(1H) was withdrawn, leaving Section 194Q as the only live provision on high-value goods purchases.
Section 194Q: TDS on Purchase of Goods, the Buyer's Obligation
Section 194Q was introduced through the Finance Act, 2021 and became effective from July 1, 2021. It places the TDS obligation on eligible buyers purchasing goods from resident sellers. Our full Section 194Q guide for FY 2026-27 covers the mechanics in depth.
Applicability Conditions
| Condition | Requirement |
|---|---|
| Buyer's turnover | Total sales, gross receipts, or turnover from business exceeds Rs 10 crore in the immediately preceding financial year |
| Transaction threshold | Purchase of goods from a single seller exceeds Rs 50 lakh in aggregate during the financial year |
| Seller | Must be a resident seller |
TDS Rate
- 0.1% of the sum exceeding Rs 50 lakh, if the seller has furnished PAN
- 5% if the seller has not furnished PAN
Timing of Deduction
TDS must be deducted at the earlier of:
- The time of credit of the sum to the seller's account, or
- The time of payment
Key Points
- The threshold is per seller per financial year, not per invoice or per month
- TDS applies only on the amount exceeding Rs 50 lakh, not on the full transaction
- The provision applies only to goods. Services fall under other sections such as 194J and 194C. If you are unsure which section governs a mixed payment, see which TDS section applies to your payment
Section 206C(1H): TCS on Sale of Goods, the Seller's Obligation
Section 206C(1H) was introduced through the Finance Act, 2020 and became effective from October 1, 2020. It placed the TCS obligation on eligible sellers receiving consideration from buyers. Our Section 206C TCS guide covers the wider TCS framework that survives.
Applicability Conditions
| Condition | Requirement |
|---|---|
| Seller's turnover | Total sales, gross receipts, or turnover from business exceeds Rs 10 crore in the immediately preceding financial year |
| Transaction threshold | Sale of goods to a single buyer exceeds Rs 50 lakh in aggregate during the financial year |
TCS Rate
- 0.1% of the sum exceeding Rs 50 lakh, if the buyer has furnished PAN
- Higher rate if PAN is not provided
Timing of Collection
TCS is collected at the time of receipt of consideration. This is the single most important structural difference from 194Q, which triggers at credit or payment, whichever is earlier.
Key Points
- Both 194Q and 206C(1H) apply when the annual turnover of the entity, buyer or seller, exceeds Rs 10 crore
- The tax is levied on transactions exceeding Rs 50 lakh with a single party in a financial year
The Precedence Rule: Section 194Q Overrides 206C(1H)
The Central Board of Direct Taxes resolved the overlap through Circular No. 13/2021 dated June 30, 2021. The circular established a clear hierarchy:
When both provisions are applicable, TDS under Section 194Q takes precedence over TCS under Section 206C(1H).
How It Works
| Buyer's turnover above Rs 10 cr? | Seller's turnover above Rs 10 cr? | Applicable section |
|---|---|---|
| Yes | Yes | 194Q, buyer deducts, seller skips TCS |
| Yes | No | 194Q, buyer deducts |
| No | Yes | 206C(1H), seller collects |
| No | No | Neither |
Practical Implication
If a transaction falls within the purview of both Section 194Q and Section 206C(1H), tax is required to be deducted under Section 194Q. The second proviso to Section 206C(1H) specifically exempts the seller from collecting TCS if the buyer has deducted TDS under Section 194Q.
Seller's fallback: if the buyer fails to deduct TDS despite being liable under Section 194Q, the seller must proceed with TCS collection under Section 206C(1H).
The Declaration Dance
Because the seller has no way to know the buyer's turnover, standard practice in India has become:
The buyer sends a 194Q declaration to the seller at the start of each financial year stating that they will deduct TDS. The seller then does not collect TCS.
If the declaration is missing, many sellers play safe and collect TCS anyway, which can lead to double taxation until refunded.
Best practice: issue the 194Q declaration in April to avoid the mess entirely.
Practical Scenarios
Scenario 1: Buyer Above Rs 10 Cr, Seller Above Rs 10 Cr
Case: a buyer with Rs 12 crore turnover purchases Rs 60 lakh worth of goods from a seller.
| Component | Calculation |
|---|---|
| Total purchase | Rs 60,00,000 |
| Threshold | Rs 50,00,000 |
| Amount subject to TDS | Rs 10,00,000 |
| TDS at 0.1% | Rs 10,000 |
Outcome: the buyer deducts TDS under Section 194Q. The seller does not collect TCS.
Scenario 2: Buyer Below Rs 10 Cr, Seller Above Rs 10 Cr
Case: a buyer with Rs 8 crore turnover purchases Rs 60 lakh worth of goods from a seller.
Outcome: the seller collects TCS under Section 206C(1H) at 0.1% on the amount exceeding Rs 50 lakh.
Scenario 3: Both Turnovers Below Rs 10 Cr
Outcome: neither provision applies. No TDS or TCS is required.
When Does GST Get Excluded?
Both provisions apply to the value of goods, and the tax base should exclude the GST component. As clarified, the value of supply of goods exclusive of GST is considered for the calculation.
Historical Context: Section 206C(1H) Withdrawn from April 1, 2025
Section 206C(1H) has been withdrawn with effect from April 1, 2025 by the Finance Act 2025. This reduces duplication in compliance for transactions occurring on or after that date. Understanding its framework still matters for:
- Historical compliance for transactions prior to April 1, 2025
- Understanding why Section 194Q became the primary mechanism for large purchase transactions
- Reconciliation of past TCS credits
- Cross-era transactions spanning the transition date
For FY 2025-26 and Tax Year 2026-27 onwards, Section 194Q is the primary mechanism. Section 206C(1H) is effectively a historical provision for pre-2025 transactions.
This is worth stating plainly, because a great deal of published material still presents the overlap as a live problem. It is not. If your accounting system is still collecting TCS on sale of goods, or your vendors are still demanding declarations to avoid it, that process is running on withdrawn law.
Quick Reference: Section 194Q vs 206C(1H)
| Parameter | Section 194Q | Section 206C(1H) |
|---|---|---|
| Who acts | Buyer deducts TDS | Seller collects TCS |
| Turnover test | Buyer's turnover above Rs 10 crore | Seller's turnover above Rs 10 crore |
| Transaction threshold | Rs 50 lakh per seller per year | Rs 50 lakh per buyer per year |
| Rate | 0.1%, or 5% if no PAN | 0.1% |
| When | At credit or payment, whichever is earlier | At receipt of payment |
| Precedence | Overrides 206C(1H) | Defers to 194Q when both apply |
| Current status | Active | Withdrawn from April 1, 2025 |
Key Takeaways
| Point | Detail |
|---|---|
| Section 194Q | Buyer deducts TDS at 0.1% on purchases above Rs 50 lakh from a single seller, if buyer's turnover exceeded Rs 10 crore |
| Section 206C(1H) | Seller collects TCS at 0.1% on sales above Rs 50 lakh to a single buyer, if seller's turnover exceeded Rs 10 crore |
| Precedence | 194Q wins. If the buyer is liable to deduct TDS, the seller is exempt from TCS |
| Threshold tracking | Rs 50 lakh is per party per financial year, not per invoice |
| GST exclusion | TDS and TCS apply on the value of goods exclusive of GST |
| Declaration | Buyers should issue a 194Q declaration to sellers at the start of the financial year |
| Current status | Section 206C(1H) was withdrawn from April 1, 2025 |
Common Questions
Q: Who deducts tax under Section 194Q?
A: The buyer deducts TDS at 0.1% on purchases of goods exceeding Rs 50 lakh from a single seller, provided the buyer's turnover exceeded Rs 10 crore in the preceding financial year.
Q: Who collects tax under Section 206C(1H)?
A: The seller collects TCS at 0.1% on sales of goods exceeding Rs 50 lakh to a single buyer, provided the seller's turnover exceeded Rs 10 crore in the preceding financial year.
Q: What happens when both Section 194Q and 206C(1H) apply?
A: Section 194Q takes precedence. If the buyer is liable to deduct TDS under Section 194Q, the seller is exempt from collecting TCS under Section 206C(1H).
Q: What is the threshold for Section 194Q?
A: The threshold is Rs 50 lakh in aggregate purchases from a single seller in a financial year.
Q: Is Section 206C(1H) still applicable in 2026?
A: No. Section 206C(1H) has been withdrawn with effect from April 1, 2025. For transactions on or after that date, Section 194Q is the primary provision.
Q: Does GST get included in the Rs 50 lakh threshold?
A: No. The threshold and the TDS or TCS calculation apply to the value of goods exclusive of GST.
Q: What if the seller does not have a PAN?
A: Under Section 194Q, if the seller has not furnished PAN, TDS is deducted at 5% instead of 0.1%. Separately, if the seller is a specified person flagged under Section 206AB, a higher rate may apply. See our guide on higher TDS for non-filers under Sections 206AB and 206CCA.
Where Tax Garden Helps
Navigating the overlap between Section 194Q and Section 206C(1H), tracking thresholds, issuing declarations, and ensuring compliance is a significant operational burden for businesses. A single missed TDS deduction can lead to disallowance of expenses, interest, and penalties.
Tax Garden's TDS compliance plans help you:
- Determine if your transactions trigger Section 194Q or 206C(1H)
- Track vendor-wise and buyer-wise thresholds across the financial year
- Draft and issue 194Q declarations to sellers
- File TDS returns and reconcile TCS credits
- Update your systems for Section 194Q compliance under the Income Tax Act, 2025
For related topics, see our guides on TDS on purchase of goods under Section 194Q, TCS under Section 206C, which TDS section applies to your payment, the TDS rate chart for FY 2026-27, TDS threshold limits across all sections, Section 201(1A) interest on late deposit, and the Income Tax Act 2025 section mapping guide.
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Sources
This guide is verified against Section 194Q of the Income Tax Act, 1961 (TDS on payment of certain sums for purchase of goods, introduced by the Finance Act 2021 and effective July 1, 2021), Section 206C(1H) of the Income Tax Act, 1961 (TCS on sale of goods, introduced by the Finance Act 2020 and effective October 1, 2020, withdrawn with effect from April 1, 2025 by the Finance Act 2025), the second proviso to Section 206C(1H) exempting the seller where the buyer has deducted under Section 194Q, CBDT Circular No. 13/2021 dated June 30, 2021 (guidelines under Section 194Q confirming that Section 194Q takes precedence where both provisions apply), Section 206AA (higher rate where PAN is not furnished), Section 206AB (higher rate for specified persons), and Section 40(a)(ia) (disallowance of expenditure for non-deduction). The withdrawal of Section 206C(1H) from April 1, 2025 was confirmed from Finance Act 2025 reporting on TaxGuru and related professional commentary. Rates, thresholds, and definitions cross-checked against ICAI, TaxGuru, and CAClubIndia reference materials as of September 2026. Verify current rates, thresholds, and procedures on incometax.gov.in before acting, as rules may be updated periodically. This article is general information on Section 194Q and Section 206C(1H) and not a substitute for professional advice.
