Section 194Q TDS on purchase of goods is one of those provisions that looks simple on paper but creates daily questions for accounts teams: which vendors are covered, when to start deducting, what to do with GST and purchase returns, and how the new Income-tax Act 2025 changes the paperwork. The good news is that once the rules are set up in your ERP, the provision runs almost on autopilot.
This guide explains who must deduct, how the ₹50 lakh threshold works, the practical issues buyers face most often, and what changed from 1 April 2026 when section 194Q was carried into section 393(1) of the new Act.
Key takeaways
- A buyer whose turnover exceeded ₹10 crore in the preceding financial year must deduct TDS on purchases of goods from a resident seller once purchases from that seller cross ₹50 lakh in the year.
- The rate is 0.1% on the amount above ₹50 lakh; it rises to 5% if the seller has not furnished a PAN.
- From 1 April 2026 the same obligation sits in section 393(1) of the Income-tax Act 2025; rates and thresholds were carried over, but forms are renumbered (Form 26Q is now Form 140, Form 16A is now Form 131).
- TCS on sale of goods under the old section 206C(1H) was withdrawn from 1 April 2025, so buyer-side TDS is now the only mechanism for most goods transactions.
- Clean vendor masters, turnover checks at the start of each year and a ledger-level trigger at ₹50 lakh prevent most defaults.
Who must deduct section 194Q TDS on purchase
The provision applies to a buyer, meaning a person whose total sales, gross receipts or turnover from business exceeded ₹10 crore in the financial year immediately preceding the year of purchase. The legal form of the buyer does not matter; companies, firms, LLPs and individuals with large businesses are all covered once they cross this turnover line.
The seller must be a resident. Purchases from non-residents are dealt with under the separate non-resident TDS provisions. The obligation arises only on the portion of purchases from a single seller that exceeds ₹50 lakh in the year, so small and occasional vendors are naturally outside its scope.
A few situations where this TDS does not apply:
- Where tax is deductible under any other TDS provision on the same transaction.
- Where the transaction is covered by TDS on e-commerce operators (the old section 194O), which takes priority.
- Where tax is collectible at source under the TCS provisions other than the withdrawn sale-of-goods TCS.
- Certain notified persons and specified transactions, which the government can exclude by notification. Check the current list before relying on any exclusion.
How the ₹50 lakh threshold works: a worked example
The threshold is counted per seller, per financial year, and it resets every 1 April. TDS is charged only on the excess.
| Month | Purchase from Seller A (₹) | Cumulative (₹) | Amount liable to TDS (₹) | TDS at 0.1% (₹) |
|---|---|---|---|---|
| April–July | 42,00,000 | 42,00,000 | Nil | Nil |
| August | 12,00,000 | 54,00,000 | 4,00,000 | 400 |
| September | 10,00,000 | 64,00,000 | 10,00,000 | 1,000 |
In this example the buyer starts deducting in August, only on the ₹4 lakh that crosses the threshold, and on every rupee of purchases from that seller thereafter in the same year. Many businesses simply configure their ERP to deduct from the first invoice for vendors who routinely cross ₹50 lakh; that is acceptable as long as the total deducted is correct by year-end.
Timing, GST and other practical issues
When to deduct
TDS is deducted at the time of credit to the seller’s account or payment, whichever is earlier. For most businesses this means at the time the purchase invoice is booked.
GST component
Where TDS is deducted at the time of credit and the GST amount is shown separately on the invoice, TDS is computed on the value excluding GST. Where TDS is deducted on an advance payment, the entire payment is treated as the base, because the GST split is not yet known.
Purchase returns and discounts
If goods are returned after TDS has been deducted, the usual practical approach is to adjust the excess against subsequent purchases from the same seller within the year, rather than seeking a refund of the TDS already deposited.
Capital goods and freight
The provision covers purchase of goods generally, so capital goods are included. Freight or other services invoiced separately may attract a different TDS provision, so map each expense head carefully.
What changed from 1 April 2026 under the Income-tax Act 2025
The Income-tax Act 2025 came into force on 1 April 2026 and uses the concept of a tax year in place of previous year and assessment year. All non-salary TDS provisions for residents have been consolidated into a table under section 393(1), and TDS on purchase of goods now sits in that table. The rate (0.1%), the ₹10 crore turnover test and the ₹50 lakh threshold were retained.
What does change is the paperwork:
| Item | Up to 31 March 2026 | From 1 April 2026 |
|---|---|---|
| Charging provision | Section 194Q (1961 Act) | Section 393(1) (2025 Act) |
| Quarterly TDS return | Form 26Q | Form 140 |
| TDS certificate to seller | Form 16A | Form 131 |
| Seller’s tax credit statement | Form 26AS | Form 168 |
The practical rule is that the law applicable to a transaction depends on when the earlier of credit or payment happened. Invoices credited on or before 31 March 2026 remain under the 1961 Act, even if paid later. For a full map of renumbered forms, see our guide to new income-tax form numbers.
Compliance checklist for buyers
- Confirm the turnover test each April based on the audited or final figures for the preceding year.
- Tag vendors in the master: resident or non-resident, PAN available, goods or services, and whether any other TDS or TCS provision applies.
- Set a cumulative trigger at ₹50 lakh per seller in your ERP or purchase register.
- Deposit TDS by the 7th of the following month (30 April for March deductions).
- File the quarterly return (Form 140 from tax year 2026-27) and issue Form 131 certificates to sellers on time.
- Reconcile quarterly with sellers so that their Form 168 matches your books.
What happens if TDS is missed
Missed deduction can lead to interest for the period of delay, late filing fees for returns, and a disallowance of 30% of the purchase amount while computing business income until the TDS is deposited. The buyer can also be treated as an assessee in default. If you receive a notice, our article on TDS default notices, late fee and interest explains how to respond calmly and correct the position.
The reassuring part is that most defaults under this provision arise from set-up gaps rather than intent, and they are straightforward to fix with a correction statement and payment of interest.
Frequently asked questions
Does section 194Q apply if my turnover is below ₹10 crore?
No. The obligation arises only for buyers whose business turnover exceeded ₹10 crore in the preceding financial year. The test is repeated every year.
Is TDS deducted on the full ₹50 lakh or only on the excess?
Only on the amount by which purchases from a seller exceed ₹50 lakh in the financial year. Purchases up to ₹50 lakh are not subjected to this TDS.
Should TDS be calculated on the GST-inclusive amount?
If TDS is deducted when the invoice is credited and GST is shown separately, deduct on the value excluding GST. For advance payments, deduct on the full amount paid.
Which return do I file for purchases from April 2026 onwards?
For deductions from 1 April 2026, the quarterly statement for non-salary TDS is Form 140, which replaces Form 26Q under the Income-tax Rules 2026.
If you would like help setting up TDS on purchases in your ERP or reviewing vendor ledgers before your next quarterly return, our team is happy to assist.
This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.
