TDS on Purchase of Goods Above Rs 50 Lakh: Section 194Q Guide FY 2025-26

Imagine you're a procurement manager at a manufacturing company that purchases raw materials worth crores every year. One day, your auditor flags a compliance gap: you've been missing TDS deductions under Section 194Q on high-value purchases. The penalty? A massive 30% disallowance of those expenses, leading to lakhs in additional tax liability. This isn't a hypothetical scenario—it's a reality many Indian businesses face today. In this comprehensive guide, you'll learn exactly when Section 194Q applies, how to calculate the 0.1% TDS, compliance steps for FY 2025-26, and how to avoid costly penalties.

What is Section 194Q of the Income Tax Act?

Section 194Q was introduced on July 1, 2021, by the Central Board of Direct Taxes (CBDT) requiring buyers to deduct tax at source (TDS) at 0.1% when they purchase goods from sellers in India. The provision aims to track high-value goods transactions and reduce tax evasion through a TDS audit trail.

From 1st April 2026, the earlier Section 194Q of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 8(ii)] under the new Income Tax Act 2025, retaining the requirement to deduct tax at source on high-value purchases. The TDS rates and monetary thresholds for all categories of payments have been retained as they are under the Income Tax Act, 1961, with the consolidation under Section 393 being a simplified tabular presentation and not a change in TDS rates.

Key Objectives of Section 194Q

• Curb tax evasion and increase tax compliance, primarily targeting large-scale buyers who play a crucial role in the economy's supply chain
• Help the government track large transactions without including the Goods and Services Tax (GST) amount
• Create a comprehensive audit trail for high-value business-to-business goods transactions
• Ensure tax is collected at the source from substantial commercial purchases

Applicability: Who Must Deduct TDS Under Section 194Q?

Not every buyer needs to deduct TDS under Section 194Q. A buyer whose turnover exceeds ₹10 crore in the preceding financial year must deduct TDS at 0.1% on purchases from a resident seller exceeding ₹50 lakh in a financial year. Let's break down the conditions:

Condition 1: Buyer's Turnover Threshold

The buyer is responsible for deducting TDS when the buyer's total sales, gross receipts, or turnover from business exceeded Rs 10 crore in the immediately preceding financial year. 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.

Important Note: 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.

Condition 2: Purchase Value Exceeds Rs 50 Lakh

The aggregate value of goods purchased from any single resident seller exceeds Rs 50 lakh during the current financial year. This threshold is calculated seller-wise, meaning you must track purchases separately for each supplier.

Condition 3: Purchase Must Be From Resident Seller

The seller must be a resident; purchases from non-resident sellers fall outside Section 194Q and may be governed by Section 195. TDS under Section 194Q is deducted from payments made to a resident seller who can be any person (individual, HUF, company, firm, or any other entity) who sells goods to the buyer.

TDS Rate, Calculation & Threshold Under Section 194Q

Standard TDS Rate: 0.1%

Tax is to be deducted at source at the rate of 0.1% on the purchase amount exceeding Rs 50 lakh in a financial year. The deduction is on the amount in excess of ₹50 lakh, not on the entire invoice value once the threshold is crossed.

Higher TDS Rate Without PAN: 5%

In cases where a seller fails to furnish PAN to a buyer, the TDS will be deducted at the rate of 5% instead of 0.1%, which is the TDS rate applicable in the case of Section 194Q. This is notably lower than the general 20% rate applicable in other no-PAN scenarios.

GST Exclusion in TDS Calculation

Calculation of turnover excluding GST is to be considered for the calculation of Rs. 50 lakhs, with TDS at the rate of 0.1% only on the value of the goods/services excluding GST. Exclude GST where it is shown separately (Circular 13/2021).

Practical Calculation Examples

Example 1: Basic Calculation

Mr. A buys goods from 3 vendors, C, D and E for Rs. 60 lakhs, Rs. 50 lakhs and Rs. 40 lakhs respectively during FY 2025-26. Since the purchases from C have crossed the threshold limit, TDS under section 194Q needs to be deducted only for purchases made from C.

• Purchase from Vendor C: Rs 60,00,000
• Threshold limit: Rs 50,00,000
• Taxable amount: Rs 10,00,000
• TDS @ 0.1%: Rs 10,000

Example 2: Higher Rate Without PAN

You buy goods worth ₹80,00,000 (ex-GST) from one seller during FY 2026-27. TDS applies on the amount above ₹50 lakh, i.e. on ₹30,00,000, at 0.1% = ₹3,000. If that seller had no valid PAN, the rate would be 5% on ₹30,00,000 = ₹1,50,000.

Use the Income Tax Calculator to estimate your overall tax liability and the Form 26AS / TDS Fetch Tool to verify TDS credits reflected in your account.

Section 194Q vs Section 206C(1H): Key Changes in FY 2025-26

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), with both having the same Rs 10 crore turnover condition and Rs 50 lakh transaction threshold.

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. TCS under 206C(1H) still apply? No — it was withdrawn from 1 April 2025; only 194Q remains.

Aspect	Section 194Q (Current)	Section 206C(1H) (Abolished)
Applicable Period	From 1 July 2021 onwards	Abolished from 1 April 2025
Who Deducts/Collects	Buyer deducts TDS	Seller collected TCS
Turnover Condition	Buyer's turnover > Rs 10 crore	Seller's turnover > Rs 10 crore
Rate	0.1% (or 5% without PAN)	0.1% (now not applicable)
Threshold	Rs 50 lakh per seller	Rs 50 lakh per buyer
Current Status	Active (now Section 393 from April 2026)	Abolished from 1 April 2025

Compliance Requirements: Form 26Q Filing & Payment Procedures

When to Deduct TDS

The TDS is to be deducted at a time when such an amount is credited to the account of the seller or paid to him, whichever is earlier. 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).

TDS Deposit Timeline

Tax deducted under Section 194Q must be deposited to the credit of the Central Government within seven days from the end of the month in which the deduction is made. For deductions made in March, the deposit due date is 30 April.

TDS Deposit Due Dates:

• TDS deducted in April 2026: Due by 7th May 2026
• TDS deducted in May 2026: Due by 7th June 2026
• TDS deducted in March 2026: Due by 30th April 2026 (extended deadline)

Quarterly TDS Return Filing: Form 26Q

The TDS Return Form 26Q due date for the January-to-March quarter is 31 May of the following financial year. The due dates for the other three quarters are 31 July, 31 October, and 31 January.

From 1 April 2026, Form 26Q has been renumbered as Form 140 under the Income Tax Act, 2025. Therefore, statements relating to Tax Year 2026-27 and later must be filed using Form 140.

Form 26Q / Form 140 Quarterly Due Dates:

• Q1 (April-June): 31st July
• Q2 (July-September): 31st October
• Q3 (October-December): 31st January
• Q4 (January-March): 31st May

Track all your TDS credits easily using the Form 26AS / TDS Fetch Tool to ensure proper reconciliation with your quarterly returns.

TDS Certificate: Form 16A

The buyer deposits TDS within 7 days of the month-end, files Form 26Q quarterly, and issues Form 16A to the seller within 15 days of the return due date. Under the new Income Tax Act 2025, Form 16A has been renumbered as Form 131.

Exemptions & Exclusions Under Section 194Q

Certain transactions are exempt from TDS deduction under Section 194Q:

Exemptions Based on Transaction Nature

• Section 194Q does not apply if tax is already deductible under any other provision of the Act on the same transaction
• Section 194O (e-commerce): where a transaction is liable to TDS under 194O, 194Q does not apply to it — 194O takes precedence
• Transactions involving renewable energy and electricity are also exempted from deducting TDS
• If a stock exchange purchases goods or commodities, it is exempted from deducting TDS

Exemptions Based on Income Status

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. This includes income exempt under Section 10 or under any other Act passed by Parliament.

Transactions Below Threshold

This section applies only to buyers whose total sales, gross receipts or turnover from their business exceeded ₹10 Crore in the previous financial year. You are exempt from deducting TDS under Section 194Q if your turnover falls below this threshold.

Penalties & Consequences for Non-Compliance

Non-compliance with Section 194Q provisions attracts severe financial penalties that can significantly impact your business profitability.

Expense Disallowance: Section 40(a)(ia)

Failure to deduct or deposit TDS under Section 194Q may result in interest charges, penalties, and disallowance of up to 30% of the related expenditure under Section 40(a)(ia). If the buyer fails to deduct TDS, 30% of the total purchases on which TDS has not been deducted will be disallowed as an expense. Consequently, this 30% will be treated as your income and will be liable to tax, with 30% of the total purchases clubbed into your net income and taxed along with your total income.

If you bought goods worth ₹1 crore (after the initial ₹50 lakh) and forgot to deduct TDS of just ₹10,000 (0.1% of ₹1 crore), ₹30 lakh (30% of ₹1 crore) will be added back to your profit. Assuming a 30% corporate tax rate, this mistake could cost you an extra ₹9 lakh in taxes.

Interest Charges

If the buyer fails to deposit or deduct TDS, he has to pay interest at 1% p.m. from the due date to the day when TDS is actually deducted. If the buyer deducted the TDS but fails to deposit it on time, he has to pay interest at 1.5% p.m. from the TDS deduction date to the date when it is deposited.

Late deposit attracts interest at 1.5% per month under Section 201(1A).

Late Filing Fee: Section 234E

TDS deducted under Section 194Q must be reported in quarterly TDS return Form 26Q with late filing attracting a penalty of Rs. 200 per day under Section 234E. Under Section 234E of the Income Tax Act, if TDS returns are not filed by the due date, a late fee of ₹200 per day is levied for each day of delay. The fee accrues from the day after the due date to the date of actual filing and the maximum late fee is capped at the total TDS amount for that quarter.

Penalties Under Section 271C & 271H

Interest Penalty: Interest at 1% per month will be levied for non-deduction and 1.5% per month for non-payment of TDS. Penalty for Non-Deduction: A penalty equal to the TDS amount not deducted or paid may be imposed.

Section 194Q Compliance Best Practices for FY 2025-26

1. Maintain Vendor-Wise Purchase Register

Building a simple vendor-wise purchase tracker and verifying PAN details at onboarding are the two most effective steps to stay compliant. Track purchases separately for each supplier to identify when the Rs 50 lakh threshold is crossed.

2. Verify PAN Details at Vendor Onboarding

The buyer should not process high-value vendor payments without checking PAN. If PAN is missing, a higher TDS rate applies, which can create avoidable cash flow issues and vendor disputes.

3. Ensure GST Separation in Invoices

Verify that each vendor invoice separates GST as a distinct line item. This ensures accurate TDS calculation on the base value excluding GST.

4. Issue Buyer Declaration to Sellers

A short, courtesy 194Q buyer-intimation letter to the seller keeps everyone's records aligned. Sellers should obtain a written declaration from buyers above the threshold confirming that Section 194Q deductions have been made.

5. Set Up Automated Compliance Systems

Update your TDS software to use the Section 393 payment code framework for FY 2026-27. 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.

6. Reconcile Form 26AS Quarterly

Regularly download and verify your Form 26AS / TDS Fetch Tool to ensure all TDS deductions are properly reflected and credited to your account.

Impact of Income Tax Act 2025 on Section 194Q

From 1 April 2026, the Income-tax Act, 2025 consolidates TDS provisions under Section 393, without changing the applicable rates. 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. The underlying obligation, rate, and threshold remain identical. Only the section number, return form name, and payment code have changed.

Element	Until 31 March 2026	From 1 April 2026
Section Number	Section 194Q	Section 393(1) - Table Sl. No. 8(ii)
TDS Rate	0.1% (5% without PAN)	0.1% (5% without PAN) - Unchanged
Threshold Limit	Rs 50 lakh per seller	Rs 50 lakh per seller - Unchanged
Turnover Condition	Rs 10 crore in preceding FY	Rs 10 crore in preceding FY - Unchanged
TDS Return Form	Form 26Q	Form 140
TDS Certificate	Form 16A	Form 131
Deposit Timeline	7th of next month	7th of next month - Unchanged

The TDS provisions of the Income Tax Act, 1961 shall apply, since the triggering event —being the payment or credit of income, whichever is earlier —occurred prior to 1 April 2026. The commencement of the Income Tax Act, 2025 does not affect liabilities or obligations that arose under the 1961 Act in respect of tax years beginning before 1st April, 2026.

Frequently Asked Questions (FAQs)

Who is required to deduct TDS under Section 194Q?

Any buyer whose total sales, gross receipts or turnover from business exceeded Rs 10 crore in the immediately preceding financial year must deduct TDS under Section 194Q. For instance, if your FY 2025-26 turnover exceeds Rs 10 crore, you are liable to deduct TDS on goods purchases in FY 2026-27. This applies to all business entities including companies, firms, LLPs, and individuals carrying on business. The turnover threshold is computed at the entity level.

What is the TDS rate under Section 194Q and on what amount is it calculated?

The TDS rate under Section 194Q is 0.1% of the purchase amount exceeding Rs 50 lakh from a single seller in a financial year. TDS applies only on the excess amount, not the entire purchase value. For example, if you purchase goods worth Rs 80 lakh from one seller, TDS is calculated on Rs 30 lakh (Rs 80 lakh minus Rs 50 lakh) at 0.1%, resulting in TDS of Rs 3,000. If the seller does not provide PAN, the rate increases to 5% as per Section 206AA.

What are the due dates for depositing TDS and filing Form 26Q under Section 194Q?

TDS deducted under Section 194Q must be deposited within 7 days from the end of the month in which deduction is made. For deductions made in March, the deposit deadline is 30 April. Form 26Q (quarterly TDS return) must be filed by 31 July (Q1), 31 October (Q2), 31 January (Q3), and 31 May (Q4). From FY 2026-27 onwards, Form 26Q has been renumbered as Form 140 under the Income Tax Act 2025, though the due dates and filing process remain the same.

What penalties apply for non-compliance with Section 194Q?

Non-compliance with Section 194Q attracts severe penalties. Under Section 40(a)(ia), if TDS is not deducted or deposited, 30% of the purchase amount will be disallowed as a business expense, directly increasing taxable income. Interest at 1% per month applies if TDS is not deducted, and 1.5% per month if TDS is deducted but not deposited on time. Additionally, late filing of Form 26Q attracts a penalty of Rs 200 per day under Section 234E, capped at the total TDS amount for that quarter.

How does Section 194Q differ from the old Section 206C(1H) TCS provision?

Earlier, both Section 194Q (buyer deducts TDS) and Section 206C(1H) (seller collects TCS) existed simultaneously, causing confusion. Section 194Q took precedence when both applied. However, Finance Act 2025 abolished Section 206C(1H) TCS on sale of goods with effect from 1 April 2025. Now, only Section 194Q applies to purchase of goods, simplifying compliance. From 1 April 2026, Section 194Q has been consolidated into Section 393 under the new Income Tax Act 2025, retaining the same rate, threshold and conditions.

Conclusion: Stay Compliant with Section 194Q in FY 2025-26

Section 194Q compliance is non-negotiable for businesses with turnover exceeding Rs 10 crore. The 0.1% TDS on goods purchases above Rs 50 lakh per seller may seem minimal, but the penalties for non-compliance—including 30% expense disallowance, interest charges, and late fees—can severely impact your profitability and cash flow. With the transition to Section 393 under the new Income Tax Act 2025 from April 2026, staying updated on form changes (Form 26Q to Form 140) and maintaining robust vendor-wise tracking systems is critical.

Don't let TDS compliance become a costly oversight. Set up automated vendor purchase tracking, verify PAN details at onboarding, deposit TDS by the 7th of each month, and file quarterly returns on time. Most importantly, reconcile your Form 26AS regularly to ensure all TDS credits are properly reflected.

Ready to simplify your tax compliance? Explore TaxFetch Tools for automated TDS tracking, Form 26AS reconciliation, and comprehensive tax calculation solutions. From the Income Tax Calculator to the Form 26AS / TDS Fetch Tool, TaxFetch India helps you stay compliant, avoid penalties, and optimize your tax strategy for FY 2025-26 and beyond.