TDS on Purchase of Goods Under Section 194Q, Explained

If your business buys goods worth more than ₹50 lakh a year from a single supplier, and your turnover crossed ₹10 crore the year before, Section 194Q likely already applies to you, whether or not your accounts team has actually started deducting tax on it. It's one of the more recently introduced TDS provisions, and it's also one that a lot of outdated material online still describes alongside a mirror TCS provision that, as of FY 2025-26 onward, no longer applies. Here's what actually holds today.

Who Section 194Q Applies To

Section 194Q applies to a buyer whose total turnover, sales, or gross receipts exceeded ₹10 crore in the immediately preceding financial year. If that threshold is met, the buyer must deduct TDS on purchases of goods from a resident seller, regardless of the seller's own size or turnover. It's a buyer-side obligation only: a seller with turnover above ₹10 crore doesn't independently trigger anything under this specific section just by being large; it's the buyer's turnover that decides whether the obligation exists.

The ₹50 Lakh Threshold, and TDS Only on the Excess

TDS applies once purchases from a single seller cross ₹50 lakh in the financial year, and, importantly, only on the amount above ₹50 lakh, not on the full purchase value. Buy goods worth ₹70 lakh from one seller in a year, and TDS applies only to the ₹20 lakh above the threshold, not the entire ₹70 lakh. This threshold is tracked per seller, not in aggregate across all your purchases, so a buyer dealing with many smaller suppliers, each below ₹50 lakh individually, may have no Section 194Q obligation at all even with substantial total purchases.

The Rate, and What Happens Without a PAN

The TDS rate under Section 194Q is 0.1% on the amount above the ₹50 lakh threshold. If the seller doesn't provide a valid PAN, the rate rises sharply to 5%, a jump significant enough that collecting supplier PAN details upfront, before the first purchase in a financial year, is worth treating as a standard onboarding step rather than something to chase down later.

An Important Correction: TCS on Sale of Goods No Longer Applies

A lot of material still in circulation describes Section 194Q alongside a mirror provision, Section 206C(1H), under which a seller collects TCS on sales above ₹50 lakh to a single buyer, with a rule deciding which of the two applies when both could. That mirror provision has been switched off since 1 April 2025: Section 206C(1H) was made inoperative by the Finance Act 2025, and Section 194Q was correspondingly amended to drop the exclusion clause that used to hand priority to 194Q whenever TCS also applied. In practice, for FY 2025-26 and FY 2026-27, sellers simply don't collect TCS under this provision at all, regardless of the buyer's turnover, and only the buyer's TDS obligation under Section 194Q remains live. If your compliance checklist or accounting software still asks you to check for a 206C(1H) TCS obligation on sales, that check is now redundant, and it's worth confirming with your provider or advisor that this has actually been updated.

Under the Income Tax Act, 2025

Section 194Q, along with the rest of the TDS provisions on specific payment types, has been folded into the new Act's consolidated Section 393, organised as structured tables of payment categories and rates rather than a separate standalone section for each one. The rate and thresholds haven't changed in this transition; only the citation has, consistent with the rest of the renumbering under the new Act.

For a business with turnover above ₹10 crore, the practical takeaway is straightforward: track purchases from each supplier separately, deduct 0.1% the moment any single supplier crosses ₹50 lakh for the year, and don't budget for or expect a TCS charge from sellers on the same transactions anymore. Getting supplier PAN details collected early is the single easiest way to avoid the 5% no-PAN rate landing on a purchase that should have cost a fraction of that in TDS.