TDS Under Section 194Q: Buyer's Obligation on Purchase of Goods Above Rs. 50 Lakh
TL;DR
- Section 194Q applies to buyers whose business turnover in the previous year exceeded Rs. 10 crore.
- TDS at 0.1 percent must be deducted on aggregate purchases of goods from a single seller exceeding Rs. 50 lakh in a financial year.
- The TDS is on the amount in excess of Rs. 50 lakh, not on the entire purchase amount.
- If TCS under Section 206C(1H) is being collected by the seller, the buyer's 194Q deduction takes priority and TCS need not be collected.
- This provision helps capture B2B transaction trails and ensures parity with 194C/194J that already exist for services.
What this means in plain terms
For decades, the Indian tax system has had TDS on most payments for services - contractors, professionals, rent, interest - but a striking gap existed for purchases of goods. A buyer could pay crores to a goods supplier with no TDS obligation, while a much smaller services payment triggered withholding. Section 194Q, introduced in the Finance Act 2021, closed this gap for large buyers.
The rate is gentle - just 0.1 percent - because the intent isn't to collect significant revenue at source. The real purpose is to create a digital data trail of major B2B goods transactions, helping the department reconcile reported income across the buyer and seller's books. For MSMEs and smaller suppliers, this can mean a small deduction on every payment over Rs. 50 lakh from a large buyer.
Who must deduct under 194Q
Eligibility threshold
The buyer must have business turnover exceeding Rs. 10 crore in the previous financial year. Note this is "buyer" - meaning the entity acquiring the goods, not the seller. Small buyers below this threshold are exempt.
Categories of buyers
Companies, partnership firms, LLPs, and HUFs or individuals with turnover above Rs. 10 crore are all covered. Government entities and entities specifically notified as exempt under Section 194Q are excluded.
Definition of goods
Any tangible movable property - raw materials, finished goods, capital equipment, components - is covered. Services are not within 194Q (they are addressed under 194C, 194J etc.). Specific exclusions exist for transactions on recognised stock exchanges and electricity transactions.
How the threshold and rate work
Aggregate per seller
The Rs. 50 lakh threshold is computed seller-wise across the financial year. If you buy Rs. 30 lakh from Vendor A in May and Rs. 25 lakh in October, you've crossed Rs. 50 lakh from that seller. TDS applies on the excess (Rs. 5 lakh) and on all future purchases.
Rate of 0.1 percent
The deduction rate is 0.1 percent of the amount in excess of Rs. 50 lakh, applied at the time of credit or payment, whichever is earlier. Without PAN, the rate jumps to 5 percent under Section 206AA - a 50x jump.
Excluding GST
If GST is shown separately in the invoice, TDS is calculated only on the base value excluding GST. If not separately shown, TDS applies on the full invoice value.
Interaction with Section 206C(1H) TCS
Both provisions overlap
Section 206C(1H) requires the seller (turnover above Rs. 10 crore) to collect 0.1 percent TCS on aggregate sales above Rs. 50 lakh to a single buyer. Section 194Q requires the buyer to deduct 0.1 percent TDS on the same transaction. Without rules, both would apply to the same payment.
Priority of 194Q
The law specifies that when both 194Q (buyer's TDS) and 206C(1H) (seller's TCS) could apply, the buyer's 194Q deduction takes priority. Once the buyer deducts under 194Q, the seller is relieved from collecting TCS on that transaction.
Communication between buyer and seller
Buyers typically inform large suppliers that they will be deducting under 194Q from a specific transaction onwards. Sellers maintain a parallel record to ensure they don't collect TCS on those same payments and create a double-tax issue.
A real example
Aditya, 45, runs a steel fabrication company in Ahmedabad with annual turnover of Rs. 35 crore. From April 2026, he begins purchasing steel sheets from Sneha's mill. By 31st March 2027, his total purchases from Sneha total Rs. 1.2 crore across 10 invoices.
Step 1: Aditya's turnover exceeded Rs. 10 crore, so Section 194Q applies to him as the buyer.
Step 2: Sneha's mill turnover also exceeds Rs. 10 crore, so 206C(1H) could potentially apply. However, since 194Q has priority, Aditya deducts and Sneha does not collect.
Step 3: Aditya tracks cumulative purchases. The first Rs. 50 lakh of purchases (across multiple invoices) has no TDS. Once aggregate crosses Rs. 50 lakh on a payment in October 2026, TDS starts.
Step 4: Cumulative payment above the threshold = Rs. 1,20,00,000 - Rs. 50,00,000 = Rs. 70,00,000.
Step 5: TDS at 0.1 percent on Rs. 70,00,000 = Rs. 7,000.
Step 6: Aditya deducts Rs. 7,000 progressively from payments to Sneha after the threshold breach. He deposits monthly via challan ITNS 281 and reports in Form 26Q quarterly.
Step 7: Sneha sees Rs. 7,000 credit in her Form 26AS and adjusts it against her tax liability.
Without 194Q, Sneha would have collected Rs. 7,000 as TCS instead. Either way, the same Rs. 7,000 flows to the tax department - but now Aditya bears the compliance burden.
What to do this week
- Confirm your previous year's turnover and identify whether Section 194Q applies to you as a buyer.
- Build a buyer-side tracker of cumulative purchases from each supplier to flag when Rs. 50 lakh is approached.
- Inform large suppliers in writing that you will be deducting under 194Q so they don't double-collect TCS.
- Train your accounts team on the priority between 194Q and 206C(1H) to avoid double withholding.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
Does Section 194Q apply to services?
No. Section 194Q applies only to purchase of goods. Services are governed by sections like 194C (contractor), 194J (professional/technical), and so on.
What if the seller's turnover is below Rs. 10 crore?
194Q still applies based on the buyer's turnover, not the seller's. The buyer must deduct regardless of the seller's size, as long as the buyer's previous-year turnover exceeded Rs. 10 crore.
Are imports covered under 194Q?
No. Imports of goods from outside India are not covered by 194Q. Customs duty and other import-related provisions apply instead.
What about purchases through e-commerce platforms?
If you purchase goods through an e-commerce platform from a third-party seller, Section 194Q applies to the underlying purchase. The e-commerce platform's own TDS obligations under 194-O apply separately for their commission.
What is the GST treatment under 194Q?
If GST is separately invoiced, TDS is on the base value only. If consolidated, TDS applies on the full invoice. CBDT clarification dated September 2021 provides this guidance.
Is the Rs. 50 lakh threshold calendar-year or financial-year?
Financial year (April-March). The cumulative purchases reset every 1st April. So a buyer-seller pair restarts the Rs. 50 lakh counter each new financial year.
Does TDS under 194Q affect MSME suppliers differently?
MSMEs may face cash-flow impact since 0.1 percent is deducted from each payment above the threshold. However, they recover this fully via TDS credit in their ITR. Some MSMEs apply for lower-deduction certificates under Section 197 to reduce the withholding.
Sources
- Income Tax Department, Section 194Q: https://incometaxindia.gov.in/
- TRACES portal for TDS deductors: https://www.tdscpc.gov.in/
- Finance Ministry, Section 194Q circulars: https://finmin.nic.in/
- CBDT clarifications on 194Q and 206C(1H) interplay: https://incometaxindia.gov.in/
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
