Section 194Q: TDS on Purchase of Goods

TDS provisions and thresholds are periodically revised. This article is for general information and does not constitute tax advice.

The Big Recent Change: Section 206C(1H) Is Gone

For several years, both Section 194Q (buyer deducts TDS) and Section 206C(1H) (seller collects TCS) could technically apply to the same large goods transaction, with 194Q taking priority under CBDT Circular No. 13 of 2021. From 1 April 2025, Section 206C(1H) was removed entirely. Section 194Q alone now governs TDS on goods purchases above the threshold, and a seller has no TCS obligation on the sale of goods under this route anymore.

Who Must Deduct, and When

A buyer whose turnover in the immediately preceding financial year exceeded ₹10 crore must deduct TDS once aggregate purchases of goods from a single resident seller cross ₹50 lakh in the current financial year. Tracked on a PAN basis across all branches, the rate is 0.1%, applied only to the amount exceeding ₹50 lakh, rising to 5% if the seller doesn’t have a PAN or is a “specified person” under Section 206AB.

When It Doesn’t Apply

If a transaction is already subject to TDS under another provision, 194Q doesn’t apply on top of it; it’s a residual provision for goods purchases not otherwise covered. Where Section 194-O applies (e-commerce operator TDS), that takes priority. It doesn’t extend to purchases from a non-resident seller.

Compliance and Consequences of Missing It

Compliance runs through Form 26Q filed quarterly. Missing it carries interest under Section 201(1A) and, often more painfully, disallowance of 30% of the related expenditure under Section 40(a)(ia) when computing business income.