Who has to deduct TDS under Section 194Q?

A buyer whose total sales, turnover or gross receipts exceeded Rs 10 crore in the immediately preceding financial year, on purchases of goods from a resident seller where the aggregate value crosses Rs 50 lakh in the year.

What is the TDS rate under 194Q and on which amount?

0.1% on the value of purchases exceeding Rs 50 lakh from that seller in the financial year. If the seller has no valid PAN, the rate is 5%.

Is GST included when calculating 194Q TDS?

No. Where GST is shown separately on the invoice, TDS is computed on the value excluding GST (CBDT Circular 13/2021).

Does 194Q still overlap with TCS under 206C(1H)?

No. Section 206C(1H) (TCS on sale of goods) was withdrawn from 1 April 2025. Only the buyer's TDS under Section 194Q applies now; there is no double-deduction question.

What if Section 194O also applies?

Where a transaction is liable to TDS under Section 194O (e-commerce), 194Q does not apply to it. 194O takes precedence.

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Section 194Q: TDS on Purchase of Goods — Full Guide for FY 2026-27

2026-06-30 · 7 min read · by a CA firm

Section 194Q makes large buyers deduct a small slice of TDS on their purchases of goods. It is a high-volume, easy-to-miss obligation — and since the seller-side TCS under 206C(1H) was withdrawn, 194Q is now the only tax-deduction touchpoint on most goods transactions. Under the Income-tax Act 2025 it sits within Section 393 (payment code 1031), but the rules below are unchanged.

Who must deduct

You must deduct under 194Q if your total sales, turnover or gross receipts exceeded ₹10 crore in the immediately preceding financial year. The test is on the buyer’s previous-year turnover — not the current year. If you cross ₹10 crore in FY 2025-26, you are a 194Q deductor for FY 2026-27.

What it applies to

TDS applies to purchase of goods from a resident seller where the aggregate purchase value from that seller crosses ₹50 lakh in the financial year. The ₹50 lakh threshold is tested seller-by-seller, so you track it per vendor, not in total. Services are outside 194Q (other sections such as 194C or 194J may apply to those).

Rate and the amount it applies to

The rate is 0.1%, and crucially it applies only to the value exceeding ₹50 lakh from that seller — not the whole purchase. If the seller has not furnished a valid PAN, the rate rises to 5% (Section 397(2), the old 206AA). Note this 5% no-PAN rate is specific to 194Q and is lower than the usual 20%.

GST is excluded

Where GST is shown separately on the invoice, compute TDS on the value excluding GST (CBDT Circular 13/2021). Only where GST is not separately indicated do you deduct on the gross figure.

When to deduct

Deduct at the earlier of credit to the seller’s account or payment. For purchase ledgers this usually means at the time of booking the purchase invoice once the cumulative ₹50 lakh is crossed.

Worked example

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 — a strong reason to collect PAN at onboarding.

The 194O and 206C(1H) overlaps

Two overlaps used to cause confusion; one is now resolved:

Section 194O (e-commerce): where a transaction is liable to TDS under 194O, 194Q does not apply to it — 194O takes precedence. Section 206C(1H) (seller-side TCS): this was withdrawn from 1 April 2025. Earlier, if the buyer deducted 194Q the seller did not collect 206C(1H); now the seller-side levy is simply gone, so only buyer-side 194Q remains. The old 194Q/206C(1H) cross-declaration letters that businesses exchanged are largely redundant — see our note on declarations you no longer need.

Common mistakes

Deducting 0.1% on the whole purchase instead of only the excess over ₹50 lakh; applying the threshold across all vendors together rather than per seller; deducting on the GST-inclusive figure; and forgetting to register a TAN if you have only ever been a TCS collector before. Each of these either over-deducts (annoying vendors) or under-deducts (inviting a short-deduction notice).

Compliance checklist

Use payment/return code 1031, deposit by the 7th of the next month (30 April for March), and report in Form 140 (the old Form 26Q) each quarter. Non-deduction can lead to 30% of the purchase being disallowed under the Section 40(a)(ia) equivalent, plus interest under 201(1A) and a late-filing fee under 234E. A short, courtesy 194Q buyer-intimation letter to the seller keeps everyone’s records aligned.

Frequently asked questions

Who has to deduct under 194Q? A buyer with over ₹10 crore turnover in the preceding year, on goods purchases over ₹50 lakh from a resident seller.

On which amount is the 0.1% charged? Only on the value exceeding ₹50 lakh from that seller in the year.

Is GST included? No — exclude GST where it is shown separately (Circular 13/2021).

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

For the at-a-glance rate, code and due dates, see the 194Q section guide. Related: 194C (contractors), TDS glossary, and the 194Q intimation template.

General information for FY 2026-27 under the Income-tax Act 2025, not advice on your specific case. Verify against the latest law or talk to a CA.