Section 194Q requires buyers whose turnover exceeded ₹10 crore in the preceding financial year to deduct tax at source on purchase of goods from resident sellers when consideration exceeds specified thresholds.
The provision interacts with Section 206C(1H) TCS on sale of goods and GST invoicing. Buyers must align ERP, vendor communications, and deposit timelines to avoid interest under Section 201(1A).
This article explains applicability, rates, due dates, and practical compliance.
Applicability
- Buyer’s total sales, gross receipts, or turnover from business exceeded ₹10 crore in the financial year immediately preceding the year of purchase.
- Purchase of goods (not services) from a resident seller.
- Value or aggregate value of purchase from a seller exceeds ₹50 lakh in the financial year.
- Buyer is not subject to tax audit under Section 44AB in certain overlapping situations — verify current law for exclusions.
Rate and timing of deduction
TDS at 0.1% on sum paid or credited exceeding ₹50 lakh per seller per year. If PAN is not furnished, rate is higher per Section 206AA. Deduct at the time of credit or payment, whichever is earlier.
Threshold illustration
| Cumulative purchases from Seller X | TDS base on current payment |
|---|---|
| ₹48 lakh | No TDS on next ₹2 lakh; TDS on amount above ₹50 lakh thereafter |
| ₹52 lakh already paid | Entire current payment subject to 0.1% TDS |
Coordination with Section 206C(1H)
Sellers with turnover above ₹10 crore may collect TCS on sale of goods. Where both 194Q and 206C(1H) apply, the buyer deducts TDS and TCS is not collected on the same transaction to the extent of TDS — procedural clarity in invoices avoids double tax burden.
Deposit, return and certificate
- Deposit TDS by 7th of next month (30 April for March).
- File quarterly Form 26Q; issue Form 16A to sellers.
- Reflect in Annual Information Statement for sellers’ ITR.
- Include in Form 3CD tax audit clause on TDS compliance.
ERP and vendor management
- Flag vendors crossing ₹50 lakh cumulative purchases.
- Validate PAN and residential status; exclude imports and non-resident suppliers.
- Separate goods vs services purchase orders for correct section mapping.
- Train accounts payable on gross vs net payment instructions.
General professional information only. Verify current thresholds, rates, and CBDT circulars for your financial year.