Section 194Q of the Income Tax Act: TDS on Purchase of Goods, TDS Rate, Example, and Turnover Limit

Section 194Q of the Income-tax Act 1961, deals with Tax Deducted at Source (TDS) on the purchase of goods. The buyer is required to  deduct TDS under this section while making a payment to the resident seller, when the 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 buyer's turnover in the preceding financial year does not exceed Rs.10 crore, then no TDS needs to be deducted under this section. This provision came into effect from 1st July 2021. Further, Tax Collected at Source (TCS) on the sale of goods under section 206C(1H) has been abolished with effect from 1st April 2025. Now, only TDS under section 194Q is applicable.

Applicability Criteria For Section 194Q 

Section 194Q applies if the following conditions are met:

• The buyer’s turnover, sales, or gross receipts in the preceding financial year exceed ₹10 crore.
• Purchases of goods from a resident seller exceed ₹50 lakh in a financial year.
• Applicable to both capital goods and revenue goods.

Note: If the seller is a non-resident, Section 194Q does not apply and TCS under section 206C(1H) will no longer be in practice effective from 1st April 2025.

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. 

TDS Rate Under Section 194Q

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

TDS Rate Under Section 194Q 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.

When to Deduct TDS Under Section 194Q?

• 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. 

Section 194Q vs 206C(1H) – Which Applies?

• TCS under section 206C(1H) was earlier collected by sellers on the sale of goods exceeding ₹50 lakh. With effect from 1st April 2025, this section has been removed to avoid confusion and enhance clarity.
• TDS under section 194Q will now be applicable for buyers purchasing goods of value exceeding ₹50 lakh from a resident seller. The buyer is required to deduct TDS at the rate of 0.1% on the amount exceeding ₹50 lakh.

Penalty for Non-Compliance Section 194Q of Income Tax Act 

If a buyer fails to deduct or deposit TDS under Section 194Q:

• 30% of the transaction value may be disallowed as expenditure under the Income Tax Act.
• Interest and penalties may also apply.

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.