Section 194Q TDS on Goods
Section 194Q TDS on Goods is the tax a large buyer deducts at 0.1% on the value of goods bought from a single seller above ₹50 lakh in a financial year. It appears in the books as a TDS-payable liability and a reduced payment to the supplier. It matters because a buyer whose turnover crossed ₹10 crore last year must deduct, deposit and report it, or lose 30% of the purchase as a disallowed expense.
What Are Section 194Q TDS on Goods?
Section 194Q, inserted into the Income Tax Act from 1 July 2021, makes the buyer — not the seller — responsible for collecting a slice of tax on ordinary purchases of goods. Once a buyer whose business turnover exceeded ₹10 crore in the preceding financial year buys more than ₹50 lakh of goods from one seller in a year, it must deduct 0.1% on the value above that ₹50 lakh line and pay the balance to the supplier.
An Indian trading or manufacturing business meets this every time it places repeat orders with a major raw-material or stock supplier. The purchase ledger has to flag the moment cumulative buying from a vendor crosses ₹50 lakh, switch on the 0.1% deduction, and park the withheld amount in a TDS-payable account until it is deposited. Where the same transaction could also attract the seller's TCS under Section 206C(1H), the buyer's 194Q takes precedence and the seller stops collecting.
Key terms
- Landing Cost Adjustment — Loading freight and duty onto purchase cost — the gross figure 194Q is tested against.
- Percentage of Completion Method (POCM) — Timing method for long projects, a separate revenue concept.
- RERA 70% Escrow Compliance — A real-estate fund-control rule, unrelated but often confused as another statutory deduction.
How Section 194Q TDS on Goods Work
The deduction travels from purchase order to TDS return in a set path:
- 1Confirm buyer eligibility
The accounts head checks last year's turnover; only a buyer above ₹10 crore is liable. The artefact is the audited turnover figure.
- 2Track cumulative purchases per seller
The purchase ledger totals buying from each seller across the year and flags when it crosses ₹50 lakh.
- 3Deduct 0.1% on the excess
On the next invoice past ₹50 lakh, the payable team withholds 0.1% of the amount above the threshold, not the whole bill.
- 4Deposit the TDS
The withheld tax is deposited by the 7th of the following month through a challan, clearing the TDS-payable account.
- 5File Form 26Q and issue certificate
The quarterly Form 26Q reports the deduction against the seller's PAN; the seller gets a Form 16A and the credit in Form 26AS.
Where Section 194Q TDS on Goods Applies — Trading Businesses
For a trading business, 194Q switches on wherever high-value, repeat goods purchases are made:
- Bulk stock buying — Distributors and wholesalers who buy from a handful of large suppliers routinely cross ₹50 lakh per vendor early in the year.
- Raw-material procurement — Manufacturers sourcing steel, packaging or components from a single mill must deduct once cumulative buying passes the line.
- Import-plus-domestic mix — 194Q applies to domestic purchases; goods imported through customs are outside it, so the ledger must separate the two.
- Overlap with seller TCS — Where a supplier was collecting TCS under 206C(1H), the buyer's 194Q overrides it once the buyer is liable.
- Vendor PAN discipline — A supplier without a valid PAN attracts deduction at 5% instead of 0.1%, so vendor master data must be clean.
See also: Trading Business Accounting Services Accounts Payable Outsourcing
Statutory Position on Section 194Q TDS on Goods
Section 194Q of the Income Tax Act 1961 requires a buyer whose total sales, turnover or gross receipts exceeded ₹10 crore in the immediately preceding financial year to deduct TDS at 0.1% of the purchase value that exceeds ₹50 lakh from any one seller in the year. If the seller has not furnished a PAN, the rate rises to 5% under Section 206AA. The tax is deposited by the 7th of the next month and reported in the quarterly Form 26Q. Failure to deduct disallows 30% of the purchase under Section 40a(ia) until the default is cured.
- Rate — 0.1% on value above ₹50 lakh per seller (5% if the seller has no PAN). Law stated as at 22 July 2026.
- Who deducts — Buyer with preceding-year turnover above ₹10 crore, on domestic goods purchases.
- Deposit and return — Challan by the 7th of the following month; quarterly statement in Form 26Q.
- Overlap rule — Where both 194Q and seller's 206C(1H) could apply, 194Q prevails and TCS is not collected.
Section 194Q TDS on Goods: A Practical Example
| Particulars | Amount (INR) | Treatment |
|---|---|---|
| Cumulative purchases from Supplier A by Aug 2026 | 60,00,000 | Buyer turnover > ₹10 cr, so 194Q applies |
| Threshold not subject to TDS | 50,00,000 | First ₹50 lakh excluded |
| Value liable to TDS | 10,00,000 | Amount above the threshold |
| TDS at 0.1% | 1,000 | Withheld, credited to TDS payable |
| Net paid to supplier on the excess | 9,99,000 | Balance released after deduction |
An Ahmedabad packaging distributor has bought ₹60,00,000 of film rolls from one supplier by August 2026. Because its turnover last year was ₹42 crore, Section 194Q applies. TDS at 0.1% is charged only on the ₹10,00,000 above the ₹50 lakh threshold, so ₹1,000 is withheld, deposited by 7 September and reported in Form 26Q. The supplier sees the ₹1,000 credit in its Form 26AS and adjusts it against its own tax.
Deducting on the whole invoice: Charging 0.1% on the full purchase instead of only the part above ₹50 lakh over-withholds and annoys suppliers → apply TDS only to the excess over the threshold.
Common Mistakes With Section 194Q TDS on Goods
Most 194Q errors come from testing the wrong base or missing the overlap rules:
- Deducting on the whole invoice — Charging 0.1% on the full purchase instead of only the part above ₹50 lakh over-withholds and annoys suppliers → apply TDS only to the excess over the threshold.
- Ignoring the turnover test — A buyer below ₹10 crore deducting 194Q creates needless TDS and reconciliation → check preceding-year turnover before switching it on.
- Both 194Q and TCS collected — Buyer deducting 194Q while the seller still collects 206C(1H) double-taxes the deal → 194Q prevails; tell the seller to stop TCS.
- Missing the PAN check — Not flagging a supplier with no PAN applies 0.1% instead of 5% and creates a short-deduction default → validate PAN in the vendor master.
- Late deposit — Depositing after the 7th triggers interest and risks 30% disallowance → align the TDS challan with the monthly close.
Section 194Q TDS on Goods is the tax a large buyer deducts at 0.1% on the value of goods bought from a single seller above ₹50 lakh in a financial year. It appears in the books as a TDS-payable liability and a reduced payment to the supplier. It matters because a buyer whose turnover crossed ₹10 crore last year must deduct, deposit and report it, or lose 30% of the purchase as a disallowed expense.
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Applicable framework: Income Tax Act 1961 (Sections 194Q, 206AA, 206C(1H), 40a(ia)). For general information only, not professional advice. Verify the current position for your entity before acting.