TDS on Purchase of Goods: Section 194Q / 393 Guide for FY 2026-27
Key Takeaways
- Buyers whose total sales, gross receipts, or turnover exceeded Rs 10 crore in the preceding financial year must deduct TDS at 0.1% on goods purchased from any single resident seller when the aggregate purchase value exceeds Rs 50 lakh in the financial year.
- TDS is deducted only on the amount exceeding Rs 50 lakh, not on the entire purchase value.
- If the seller does not furnish PAN, the TDS rate increases to 5% under Section 206AA.
- GST is excluded from the purchase value for TDS calculation, provided GST is separately indicated in the invoice (CBDT Circular No. 13/2021).
- Failure to deduct TDS triggers a 30% disallowance of the purchase expenditure under Section 40(a)(ia).
- Section 194Q applies only to purchase of goods, not services. Service payments are covered under other sections (194C, 194H, 194J, etc.).
- Under the Income Tax Act 2025 (effective April 1, 2026), Section 194Q is now part of the consolidated Section 393 table-driven TDS framework. Rates and thresholds remain the same.
- Section 206C(1H) (TCS on sale of goods) was removed from April 1, 2025. Only Section 194Q now governs the tax deduction on goods transactions above the threshold.
If your business buys goods from resident Indian sellers and your turnover exceeds Rs 10 crore, you are required to deduct TDS before making the payment. Section 194Q of the Income Tax Act 1961 (now consolidated into Section 393 of the Income Tax Act 2025) governs this obligation.
This section was introduced by the Finance Act 2021 (effective July 1, 2021) to bring large purchase transactions into the tax reporting net. Before 194Q, buyers of goods had no TDS obligation. The government could not systematically track high-value purchase transactions. Section 194Q fixed this gap by shifting the reporting and withholding responsibility to the buyer.
For businesses that cross the Rs 10 crore turnover mark, this creates a new compliance layer on every vendor relationship. Missing the deduction does not just attract interest and penalties. It disallows 30% of the purchase as a business expense, directly increasing your taxable income.
Looking for expert help with TDS on purchase of goods Section 194Q rates thresholds India FY 2026-27? The team at Tax Garden helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Who Must Deduct TDS Under Section 194Q
The buyer is responsible for deducting TDS. The law places two conditions on the buyer:
- The buyer's total sales, gross receipts, or turnover from business exceeded Rs 10 crore in the immediately preceding financial year.
- The aggregate value of goods purchased from any single resident seller exceeds Rs 50 lakh during the current financial year.
Both conditions must be met. If your FY 2025-26 turnover was Rs 8 crore, you have no obligation under Section 194Q for FY 2026-27, regardless of how much you purchase from any seller.
Who Qualifies as a Buyer
Any person carrying on business can be a buyer under Section 194Q. This includes:
| Entity Type | Covered? |
|---|---|
| Private limited companies | Yes |
| Public limited companies | Yes |
| Partnership firms and LLPs | Yes, if turnover > Rs 10 crore |
| Proprietorship firms | Yes, if turnover > Rs 10 crore |
| Co-operative societies | Yes, if turnover > Rs 10 crore |
| Government bodies | Yes |
| Individuals and HUFs (not in business) | No (only business purchases are covered) |
The Rs 10 crore turnover test uses the preceding financial year's figures. For FY 2026-27 deductions, your FY 2025-26 turnover determines whether you are liable.
Who Is the Deductee: The Resident Seller
TDS under Section 194Q is deducted from payments made to a resident seller. The seller can be any person (individual, HUF, company, firm, or any other entity) who sells goods to the buyer.
Section 194Q does not apply to:
- Non-resident sellers. Payments to non-residents are covered under Section 195 (now Section 393(2) under the new Act).
- Sellers whose income is exempt. If the seller's income from the transaction is not chargeable to tax (e.g., income exempt under specific provisions), Section 194Q does not apply.
TDS Rate and Threshold
| Scenario | TDS Rate |
|---|---|
| Seller has furnished PAN | 0.1% |
| Seller has not furnished PAN (Section 206AA) | 5% |
| Seller is a specified person with TDS defaults or non-filing (Sections 206AB + 206AA) | Higher of: 5%, or twice the rate (0.2%), or twice the rate in force |
How the Rs 50 Lakh Threshold Works
TDS is deducted only on the amount that exceeds Rs 50 lakh in aggregate purchases from a single seller during the financial year.
Example: Your company purchases raw materials from Seller A as follows:
| Date | Invoice Amount (excl. GST) | Cumulative Total | TDS Deducted |
|---|---|---|---|
| April 15, 2026 | Rs 20,00,000 | Rs 20,00,000 | Nil (below Rs 50 lakh) |
| July 10, 2026 | Rs 25,00,000 | Rs 45,00,000 | Nil (below Rs 50 lakh) |
| September 5, 2026 | Rs 15,00,000 | Rs 60,00,000 | Rs 1,000 (0.1% on Rs 10,00,000 exceeding Rs 50 lakh) |
| December 12, 2026 | Rs 10,00,000 | Rs 70,00,000 | Rs 1,000 (0.1% on Rs 10,00,000) |
| March 15, 2027 | Rs 8,00,000 | Rs 78,00,000 | Rs 800 (0.1% on Rs 8,00,000) |
From the third invoice onward, every payment to Seller A attracts TDS at 0.1% on the full invoice amount because the Rs 50 lakh threshold has already been crossed.
GST Exclusion
TDS under Section 194Q is calculated excluding GST, provided the GST component is separately indicated in the invoice or the contract. CBDT Circular No. 13/2021 (dated June 30, 2021) confirmed this treatment.
If the invoice shows a composite amount without separating GST, TDS must be deducted on the entire amount including GST.
Practical tip: Ensure your vendors issue invoices with GST clearly separated as a line item. This reduces your TDS deduction amount and avoids disputes.
When to Deduct TDS
TDS must be deducted at the earlier of:
- The time of credit of the purchase amount to the seller's account in the buyer's books.
- The time of payment to the seller by any mode (cash, cheque, NEFT, RTGS, or any other method).
This means that even if you have not paid the seller but have booked the purchase in your accounts payable, you must deduct TDS at the time of booking the credit entry.
What Is "Purchase of Goods"
Section 194Q applies to the purchase of goods only. It does not apply to purchase of services. The Act does not define "goods" under Section 194Q, but CBDT Circular No. 13/2021 confirms that "goods" includes all movable property other than money and securities.
Covered
| Transaction Type | TDS Under 194Q? |
|---|---|
| Purchase of raw materials | Yes |
| Purchase of finished goods for resale | Yes |
| Purchase of capital goods (plant, machinery, equipment) | Yes |
| Import of goods (from a resident intermediary in India) | Yes, if the intermediary is resident |
| Purchase of agricultural produce directly from a cultivator | No (covered by Section 194Q proviso exemption if cultivator qualifies) |
Not Covered
| Transaction Type | Why Not Covered |
|---|---|
| Purchase of services (consulting, professional, IT services) | Services are not goods. Covered under 194C, 194H, 194J, etc. |
| Purchase of securities (shares, bonds, mutual fund units) | Securities are not goods under 194Q. Covered under specific sections. |
| Transactions on a recognized stock exchange | Exempt from 194Q. |
| Imports directly from a non-resident seller | Non-resident sellers are not covered under 194Q. Section 195 applies. |
Section 194Q vs Section 206C(1H): The Overlap Is Over
Before April 1, 2025, there was a confusing overlap between Section 194Q (buyer deducts TDS on purchase) and Section 206C(1H) (seller collects TCS on sale). Both had the same Rs 10 crore turnover condition and Rs 50 lakh transaction threshold.
The rule was: Section 194Q takes priority. If the buyer is liable to deduct TDS under 194Q, the seller need not collect TCS under 206C(1H) on that transaction.
From April 1, 2025, Section 206C(1H) has been removed. The Finance Act 2025 omitted TCS on sale of goods under 206C(1H) to eliminate this overlap and simplify compliance. Now, only Section 194Q governs the tax deduction on purchase of goods above the threshold.
This means:
- Sellers no longer need to collect TCS on sale of goods (the 206C(1H) obligation is gone).
- Buyers with turnover above Rs 10 crore continue to deduct TDS under 194Q on purchases exceeding Rs 50 lakh from a single seller.
Relationship With Other TDS Sections
Section 194Q does not apply if tax is already deductible under any other provision of the Act on the same transaction. The key precedence rules:
| Payment Type | Which Section Applies |
|---|---|
| Payment to contractor for a works contract (both goods and services) | 194C takes precedence |
| Commission or brokerage paid to an agent for purchasing goods | 194H takes precedence |
| Purchase of immovable property | 194-IA takes precedence |
| Purchase of goods from a non-resident | 195 (now 393(2)) takes precedence |
| Pure purchase of goods from a resident seller (no other section applies) | 194Q applies |
If a single transaction involves both goods and services and a specific TDS section (like 194C) covers the composite transaction, Section 194Q does not apply.
Section 393 Under the Income Tax Act 2025
From April 1, 2026, the Income Tax Act 2025 replaces the 1961 Act. Section 194Q is now consolidated into Section 393 of the new Act. This is a table-driven framework that covers all non-salary TDS provisions.
What Changes
| Aspect | Before April 1, 2026 | From April 1, 2026 |
|---|---|---|
| Section number | 194Q | Section 393 (corresponding sub-clause) |
| TDS rate | 0.1% | 0.1% (unchanged) |
| Threshold | Rs 50 lakh | Rs 50 lakh (unchanged) |
| Turnover condition | Rs 10 crore | Rs 10 crore (unchanged) |
| Return form | Form 26Q | Form 140 |
| Payment codes | Old payment code | New payment code (select "Income Tax Act 2025" on the e-filing portal) |
The underlying obligation, rate, and threshold remain identical. Only the section number, return form name, and payment code have changed.
How to Deduct and Deposit TDS
Step 1: Identify Liability
At the start of each financial year, check whether your preceding year turnover exceeded Rs 10 crore. If yes, you are liable to deduct TDS under 194Q on qualifying purchases.
Step 2: Track Cumulative Purchases
Maintain a vendor-wise purchase register tracking the cumulative value of goods purchased (excluding GST) from each seller. Once the aggregate crosses Rs 50 lakh, start deducting TDS on every subsequent payment or credit.
Step 3: Deduct TDS
Deduct 0.1% at the earlier of credit or payment. If the seller has not furnished PAN, deduct at 5%.
Step 4: Deposit TDS
| Month of Deduction | Deposit Due Date |
|---|---|
| April to February | 7th of the following month |
| March | 30th April |
Deposit using Challan No. ITNS 281 (or the corresponding new challan under the Income Tax Act 2025). Use the correct payment code for Section 393 (purchase of goods) on the e-filing portal.
Step 5: File Quarterly Returns
File Form 140 (previously Form 26Q) with the following quarterly due dates:
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | April to June | 31st July |
| Q2 | July to September | 31st October |
| Q3 | October to December | 31st January |
| Q4 | January to March | 31st May |
Step 6: Issue TDS Certificate
Issue Form 16A to each seller from whom TDS was deducted, within 15 days of the due date for filing the quarterly return.
Consequences of Non-Compliance
30% Disallowance Under Section 40(a)(ia)
If you fail to deduct TDS under Section 194Q, 30% of the purchase expenditure is disallowed as a business expense. This directly increases your taxable income and tax liability.
Example: Your company purchased Rs 1 crore of goods from Seller B and did not deduct TDS. The disallowance is 30% of Rs 1 crore = Rs 30 lakh. If your company's tax rate is 25%, the additional tax liability is Rs 7.5 lakh, far exceeding the Rs 5,000 TDS that should have been deducted (0.1% on Rs 50 lakh exceeding the threshold).
Interest on Late Deduction and Deposit
| Default | Interest Rate |
|---|---|
| Failure to deduct TDS | 1% per month (from the date TDS was deductible to the date of actual deduction) |
| Failure to deposit TDS after deduction | 1.5% per month (from the date of deduction to the date of actual deposit) |
Interest is calculated on a monthly basis. Part of a month is treated as a full month.
Penalty Under Section 271C
Failure to deduct TDS can attract a penalty equal to the amount of TDS that was not deducted. This is in addition to the interest and disallowance.
Prosecution
In cases of deliberate evasion, the buyer can face prosecution under Section 276B for failure to deposit TDS, with imprisonment up to 7 years and a fine.
Common Mistakes and How to Avoid Them
Mistake 1: Not Tracking Cumulative Purchases Per Seller
Many businesses deduct TDS only when a single invoice crosses Rs 50 lakh. The threshold is based on aggregate purchases from a single seller during the financial year. Multiple smaller invoices that cumulatively cross Rs 50 lakh trigger the obligation.
Fix: Maintain a vendor-wise purchase ledger and set up alerts when cumulative purchases approach Rs 50 lakh.
Mistake 2: Including GST in the TDS Calculation
TDS should be calculated on the purchase value excluding GST (when GST is separately shown). Including GST inflates the TDS amount and creates reconciliation issues.
Fix: Train your accounts team to separate GST before calculating TDS. Verify that vendor invoices show GST as a separate line item.
Mistake 3: Not Checking Seller's PAN
If the seller has not furnished PAN, the TDS rate jumps from 0.1% to 5%. Many businesses assume 0.1% applies to all sellers.
Fix: Obtain and verify PAN from every vendor before the first payment. Maintain a vendor PAN register updated annually.
Mistake 4: Applying 194Q When Another Section Already Covers the Transaction
If you pay a contractor for a works contract that includes supply of goods and services, Section 194C (not 194Q) applies. Deducting under both sections creates double deduction issues.
Fix: Classify each vendor payment correctly. If the payment is covered by 194C, 194H, 194J, 194-IA, or 195, do not apply 194Q.
Mistake 5: Not Deducting TDS on Advance Payments
TDS under 194Q must be deducted at the time of payment or credit, whichever is earlier. Advance payments for goods that have not yet been delivered still attract TDS if the cumulative threshold has been crossed.
Fix: Deduct TDS on advance payments once the Rs 50 lakh cumulative threshold is breached.
Compliance Checklist for FY 2026-27
- At the start of FY 2026-27, confirm whether your FY 2025-26 turnover exceeded Rs 10 crore. If yes, Section 194Q applies.
- Obtain PAN from every goods vendor. Maintain a vendor PAN register. Without PAN, deduct TDS at 5%.
- Set up a vendor-wise purchase tracking system to monitor cumulative purchases (excluding GST) against each seller.
- Configure alerts when cumulative purchases from any seller approach Rs 45-50 lakh.
- Once the Rs 50 lakh threshold is crossed for a seller, deduct TDS at 0.1% on every subsequent credit or payment (whichever is earlier).
- Verify that each vendor invoice separates GST as a distinct line item. Calculate TDS on the pre-GST amount.
- Check whether the transaction is already covered under another TDS section (194C, 194H, 194J, 194-IA, 195). If yes, do not apply 194Q.
- Deposit TDS by the 7th of the following month using the correct Section 393 payment code on the e-filing portal.
- File Form 140 quarterly before the due date.
- Issue Form 16A to each seller within 15 days of the quarterly return filing due date.
- Update your TDS software to use the Section 393 payment code framework for FY 2026-27.
- For sellers flagged under Section 206AB (specified persons with TDS defaults or non-filing), verify the applicable higher rate using the compliance check utility on the income tax e-filing portal.
Tax Garden Handles Your TDS Compliance
Tax Garden's TDS compliance plans track every vendor payment, monitor cumulative purchase thresholds, deduct TDS at the correct rate under Section 194Q, deposit it before the monthly deadline, and file Form 140 on time every quarter. No missed deductions, no interest, no 30% disallowance.
For related topics, see our guides on TDS rate chart for FY 2026-27, TDS on contractor payments (Section 194C), TDS on commission and brokerage (Section 194H), TDS on professional and technical fees (Section 194J), new TDS payment codes under the Income Tax Act 2025, and the Income Tax Act 2025 section mapping guide.
Frequently Asked Questions
Does Section 194Q apply if my business turnover is below Rs 10 crore?
No. The Rs 10 crore turnover condition is mandatory. If your total sales, gross receipts, or turnover from business did not exceed Rs 10 crore in the immediately preceding financial year (FY 2025-26 for FY 2026-27 deductions), Section 194Q does not apply to you, regardless of how much you purchase from any single seller.
Is TDS under 194Q applicable on purchase of services?
No. Section 194Q applies exclusively to purchase of goods. Purchase of services is governed by other TDS sections such as 194C (contractor payments), 194H (commission/brokerage), and 194J (professional/technical fees). If a single contract covers both goods and services and is a works contract, Section 194C applies to the entire payment.
Do I need to deduct TDS on imports from foreign sellers?
No. Section 194Q applies only to purchases from resident sellers. Imports from non-resident sellers are covered under Section 195 (now Section 393(2) under the new Act). The TDS rate under Section 195 depends on the nature of the payment and the applicable Double Taxation Avoidance Agreement (DTAA).
What if both Section 194Q and Section 206C(1H) applied to the same transaction before April 2025?
Before April 1, 2025, when both sections potentially applied, Section 194Q took precedence. If the buyer was liable to deduct TDS under 194Q, the seller did not need to collect TCS under 206C(1H). From April 1, 2025, Section 206C(1H) has been removed entirely, so this overlap no longer exists.
Is GST included in the Rs 50 lakh threshold calculation?
No. CBDT Circular No. 13/2021 (dated June 30, 2021) clarified that TDS under 194Q should be computed on the purchase value excluding GST, provided GST is separately indicated in the invoice or contract. Both the threshold calculation and the TDS deduction are done on the pre-GST amount.
What happens if I deduct TDS under 194Q but the seller is already covered under Section 194C?
If the payment is covered by another specific TDS section (like 194C for contractor payments), Section 194Q does not apply. If you deducted under 194Q when 194C was applicable, you may face issues during return processing. The correct approach is to classify each payment and apply the specific section that covers the nature of the transaction.
Can the seller apply for a lower or nil TDS certificate to reduce the 194Q deduction?
Yes. The seller can apply for a lower or nil TDS certificate under Section 197 from their Assessing Officer. If the seller provides a valid certificate to the buyer, the buyer must deduct TDS at the rate specified in the certificate (which can be nil). This is useful for sellers whose total income is below the taxable limit or who have significant advance tax credits.
Sources
This guide is verified against Section 194Q of the Income Tax Act, 1961 (TDS on payment of certain sums for purchase of goods, effective July 1, 2021), Section 393 of the Income Tax Act, 2025 (consolidated non-salary TDS table, effective April 1, 2026), CBDT Circular No. 13/2021 dated June 30, 2021 (guidelines for deduction of tax under Section 194Q), Section 206C(1H) of the Income Tax Act, 1961 (TCS on sale of goods, removed from April 1, 2025 by Finance Act 2025), Section 40(a)(ia) (30% disallowance for non-deduction of TDS), Section 206AA (TDS at higher rate for no PAN), Section 206AB (TDS at higher rate for specified persons), Section 201(1A) (interest on late deduction or deposit), Section 271C (penalty for failure to deduct), and Section 276B (prosecution for failure to deposit). Rates, thresholds, and definitions confirmed from ClearTax, Tax2win, BajajFinserv, TaxGuru, and CAClubIndia reference materials as of May 2026. All rates and thresholds should be verified against incometax.gov.in before applying to specific transactions.
