Section 194Q Of Income Tax Act: Applicability, TDS Rate, Example, Turnover Limit

Section 194Q of the Income-tax Act, 1961 is related to Tax Deducted at Source (TDS) on the purchase of goods. The buyer should deduct TDS under this section while making a payment to the resident seller, when value of purchase exceeds Rs. 50 lakhs in a financial year. 

The rate of TDS is 0.1% on the value exceeding Rs. 50 lakhs. If the buyers turnover in the preceding financial year does not exceed Rs. 10 crore, then no TDS needs to be deducted under this section.   

Eligibility Criteria For Section 194Q 

This section applies to a buyer in the following cases:

• A buyer whose turnover or gross receipt or sales in the immediately preceding financial year was more than Rs 10 crores and
• A buyer is responsible for making payment of a sum to the resident seller
• Therefore, when the seller is a non-resident, no TDS needs to be deducted even when the purchase amount or turnover crosses the limits.
• Section 194Q applies to purchases of both revenue and capital goods.

Example

Mr X's turnover was more than Rs 10 crore for the financial year ended March 31, 2025. TDS needs to be deducted by Mr. X  from his resident sellers on the purchase of goods above Rs 50 lakh in the current financial year 2025-26. 

Rate Of TDS

• 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.
• This means, from the total value of purchases, Rs. 50 lakhs can be subtracted and TDS is deducted on the remaining amount.
• The threshold limit is Rs 50 lakh is applicable seller-wise. Therefore, Rs. 50 lakh limit should be reckoned for every seller in a financial year.

Examples

• Let’s say a buyer purchases goods worth Rs 20 lakh three times each from a seller, meaning he bought total goods of Rs 60 lakh. 

Now, he has to deduct Rs 50 lakh from the total value of goods purchased. The TDS has to be deducted only on Rs 10 lakh at the rate of 0.1%.

• 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 has crossed threshold limit, TDS under section 194Q needs to be deducted only for purchases made from C.

TDS Rate on Non-furnishing of PAN

• 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%.
• It is important to note that without PAN information, the rate of tax applicable in other cases is 20%. In the case of Section 194Q, the TDS rate applicable is 5%.

Impact On GST on TDS Calculation

• Calculation of turnover excluding GST is to be considered for the calculation of Rs. 50 lakhs.
• Calculation of TDS at the rate of 0.1% only on the value of the goods/services excluding GST.

Time Of Deduction Of 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.
• In other words, if you have not paid an advance amount, then you have to deduct this TDS at the time of purchase of goods.
• However, if you have made an advance payment, then you must deduct TDS immediately.
• TDS amount deducted should be remitted to the government and quarterly statement needs to be filed within the specified due dates. 

Exceptions

• Section 194Q would not apply where the TDS is to be deducted under any other provision of the act. 
• For example, there may be a purchase transaction coming under Section 194O as well as Section 194Q, then TDS would apply as per Section 194O, which relates to TDS on e-commerce transactions.

Important Points to Consider for 194Q Of Income Tax Act 

• If the buyer fails to comply with the TDS provisions u/s 194Q, they may be subjected to the disallowance of expenditure. 
• 30% of the transaction value will be disallowed on non-deduction or non-payment of TDS.

Conclusion

This section serves as a guideline for buyers who make purchases from Indian sellers exceeding Rs.50 Lakhs in the previous financial year. The applicable rate of TDS on such purchases is 0.1% when the PAN card details are provided.