Section 194Q of the Income Tax Act – TDS on Purchase of Goods

In summary

Section 194Q was the provision under the Income Tax Act, 1961 for TDS on purchases of goods. From 1 April 2026, the corresponding provision is incorporated into Section 393 of the Income Tax Act, 2025. The core rate and threshold for purchase of goods have been retained.

• TDS applies at 0.1% on the amount exceeding Rs. 50 lakh.
• The purchase must be from a resident seller.
• Under the new Act, the buyer is responsible for deducting the tax.
• The deduction is triggered on credit or payment, whichever occurs first.
• The provision applies to purchases of goods, not ordinary service transactions.
• The Rs. 50 lakh threshold is considered for the relevant tax year.

For transactions governed by the earlier Act, Section 194Q remains the relevant reference. For transactions from 1 April 2026, refer to the corresponding provision in Section 393.

Section 194Q was introduced with effect from 1 July 2021 to require certain buyers to deduct Tax Deducted at Source (TDS) when purchasing goods from resident sellers.

Under the Income Tax Act, 1961, it applied when the buyer's turnover, gross receipts, or sales exceeded Rs. 10 crore in the immediately preceding financial year and purchases from a resident seller exceeded Rs. 50 lakh during the financial year.

From 1 April 2026, the Income Tax Act, 2025 consolidates the TDS provisions. Purchase of goods exceeding Rs. 50 lakh appears under Section 393(1), Table, Serial No. 8(ii), with a TDS rate of 0.1%.

For transactions covered by the Income Tax Act, 2025, Section 393 contains the relevant TDS provision. Serial No. 8(ii) covers a sum exceeding Rs. 50 lakh for the purchase of goods and specifies a 0.1% TDS rate.

The provision states that the deduction applies to the amount exceeding Rs. 50 lakh. It also provides that the deduction does not apply where tax is already deductible or collectible under another applicable provision of the Act.

This means that businesses should not simply apply the old section number to every transaction made after 1 April 2026. The applicable law depends on the date of the credit or payment and the tax framework governing that transaction. The Income Tax Department confirms that payments or credits from 1 April 2026 are governed by the new Act.

Under the earlier Section 194Q framework, the buyer had to satisfy a turnover condition in addition to the purchase threshold.

For transactions governed by the Income Tax Act, 2025, Section 393(1), Serial No. 8(ii), states that the payer is any person being a buyer. The provision itself specifies the Rs. 50 lakh threshold and 0.1% rate without reproducing the earlier Section 194Q turnover test in that table.

This is an important change in how the provision is structured. Businesses should therefore apply the law applicable to the relevant transaction date instead of automatically carrying forward every condition from Section 194Q.

For related tax provisions, you can also read about Section 206C of the Income Tax Act.

For the current Section 393 framework, TDS applies when the specified purchase amount exceeds Rs. 50 lakh. The tax is deducted on the amount above the threshold.

For example, assume an eligible purchase of goods totals Rs. 80 lakh during the relevant tax year.

The amount subject to TDS is:

Rs. 80 lakh − Rs. 50 lakh = Rs. 30 lakh

At 0.1%:

Rs. 30 lakh × 0.1% = Rs. 3,000

Therefore, the TDS would be Rs. 3,000, assuming the transaction meets all other applicable conditions.

Under Section 393, TDS is generally deducted at the earlier of:

• The date on which the amount is credited to the seller's account.
• The date on which the payment is made in cash, by cheque, draft, or another mode.

This means an advance payment can trigger the deduction before the goods are actually delivered. Similarly, where the purchase is recorded in the books before payment, the credit can trigger the obligation.

The Income Tax Department has clarified that the applicable TDS provision is determined by the date of credit or payment, whichever is earlier.

The standard TDS rate for the purchase-of-goods provision is 0.1% on the amount exceeding Rs. 50 lakh.

For example, if eligible purchases total Rs. 65 lakh:

Last updated: October 2026

The current Income Tax Department text for Section 393 specifies the 0.1% rate and Rs. 50 lakh threshold for purchase of goods.

The provision concerns the purchase of goods. This can include business purchases such as raw materials, machinery, equipment, inventory, and other goods, depending on the transaction.

A payment purely for services should not be treated as a purchase of goods merely because it is a business expense. Other TDS provisions may apply to services depending on the nature of the payment.

Businesses should therefore first identify the legal nature of the transaction before deciding which TDS provision applies.

GST and income-tax TDS are separate mechanisms. TDS under the Income Tax Act is deducted by the buyer in accordance with the applicable income-tax provision, while GST TDS operates under the GST law for specified deductors and transactions.

For Section 194Q transactions under the earlier framework, CBDT guidance provided rules for determining the amount on which TDS is deducted when GST is separately indicated on the invoice. Businesses should apply the relevant rules and documentation for the applicable transaction period rather than automatically using one treatment for every invoice.

Keeping GST invoices and purchase records accurate can help reconcile the purchase value and TDS deducted.

The purchase-of-goods provision does not operate independently of every other TDS rule. Under Section 393, the deduction for purchase of goods does not apply to a transaction on which tax is already deductible or collectible under another applicable provision.

This matters for transactions involving specialised provisions. For example, an e-commerce transaction may fall under a specific TDS provision rather than the general purchase-of-goods rule.

You should therefore identify the transaction, parties, nature of payment, and applicable section before deducting tax.

Under the Income Tax Act, 1961, Section 194Q dealt with TDS by the buyer, while Section 206C(1H) dealt with TCS by the seller on specified sales of goods.

However, Section 206C(1H) was withdrawn with effect from 1 April 2025. Therefore, it should not be presented as a currently operative general TCS provision for sales exceeding Rs. 50 lakh. The older interaction between 194Q and 206C(1H) remains relevant mainly when interpreting historical transactions.

For the current position, businesses should check whether another operative TCS or TDS provision applies to the transaction.

Businesses subject to TDS should maintain records that allow them to identify when the threshold is crossed and when the deduction obligation arises.

Useful records include:

• Vendor-wise purchase ledgers.
• Purchase invoices and credit notes.
• Payment records.
• Seller PAN details.
• GST information appearing on invoices.
• TDS deduction and deposit records.
• TDS return and certificate records.
• Reconciliation between accounting records and tax statements.

A vendor-wise system is particularly useful because the threshold is linked to aggregate purchases rather than one isolated invoice.

Failure to deduct or deposit TDS correctly can result in interest, fees, penalties, reporting issues, and potential disallowance consequences under applicable provisions.

Businesses should also distinguish between failure to deduct, failure to deposit, short deduction, and late reporting, as the consequences can differ.

For transactions governed by the Income Tax Act, 2025, the applicable compliance provisions should be checked under the new Act rather than automatically relying on penalty provisions from the earlier law.

Before deducting TDS on a purchase, establish the following:

• Transaction date: Determine whether the Income Tax Act, 1961 or 2025 applies.
• Nature of payment: Confirm that the transaction concerns goods.
• Seller status: Establish whether the seller is resident where relevant.
• Aggregate purchases: Track purchases against the applicable Rs. 50 lakh threshold.
• Other provisions: Check whether another TDS or TCS provision takes precedence.
• Timing: Identify the earlier of credit or payment.
• Rate: Apply the rate prescribed for the relevant provision and transaction.
• Documentation: Retain invoices, PAN details, accounting records, and TDS records.

For broader tax compliance context, you can also review Section 269SS of the Income Tax Act.

Section 194Q was the Income Tax Act, 1961 provision governing TDS on specified purchases of goods. From 1 April 2026, the corresponding purchase-of-goods TDS rule is contained in Section 393 of the Income Tax Act, 2025, with a 0.1% rate on the amount exceeding Rs. 50 lakh.

Businesses should pay particular attention to the transaction date, purchase threshold, nature of goods, timing of credit or payment, and interaction with other TDS provisions. Using the correct statutory framework is essential during the transition from the old Act to the new Act.

Last reviewed: October 2026

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