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Key takeaways
- A buyer with turnover above INR 10 crore in the previous year deducts TDS at 0.1 percent on purchases from one resident seller above INR 50 lakh in a financial year.
- Tax is deducted only on the amount above the threshold, at the earlier of crediting the seller or paying, advances included.
- If the seller gives no PAN the rate is 5 percent. Deposit is due by the 7th of the next month, and by 30 April for March.
- The Income-tax Act 2025 applies from 1 April 2026 and secondary sources place this rule at section 393(1). The Income Tax Department page still cites 194Q.
Free PDF and Excel: 194Q TDS tracker and compliance calendar. Get it below
What section 194Q does
Section 194Q requires a buyer whose turnover crossed INR 10 crore in the preceding year to deduct tax at source when paying a resident seller for goods worth more than INR 50 lakh in a financial year.
The point of the rule is to put the buyer, not only the seller, on the hook for reporting high-value goods purchases. It sits alongside the TDS provisions you already run for services and rent, but it follows purchases, so it hits procurement and accounts payable together.
A buyer with turnover above INR 10 crore has paid a steel supplier INR 40,00,000 so far this year. A new invoice for INR 20,00,000, GST shown separately, is due. The new total is INR 60,00,000, which is INR 10,00,000 above the threshold.
TDS is 0.1 percent of INR 10,00,000, which is INR 1,000, deducted from the payment. Had the supplier no PAN on file, the rate would be 5 percent, or INR 50,000.
The rules at a glance
| Point | Rule |
|---|---|
| Who deducts | Buyer carrying on business with turnover above INR 10 crore in the preceding financial year |
| Seller | A resident |
| Threshold | Purchases from one seller above INR 50 lakh in a financial year, tax only on the excess |
| Rate | 0.1 percent, or 5 percent if the seller does not furnish PAN |
| Timing | Earlier of credit to the seller or payment in any mode, advances included |
| Deposit | By the 7th of the next month, by 30 April for March |
| Return and certificate | Quarterly Form 26Q, and Form 16A to the seller within 15 days of the return due date |
Free PDF and Excel
194Q TDS tracker and compliance calendar
A seller-by-seller threshold tracker, a monthly compliance calendar and a checklist for accounts payable.
- Seller threshold tracker
- Monthly deposit and return calendar
- Checklist for new sellers
- Excel tracker that works out the TDS on each payment
Run your numbers
Enter purchases so far this financial year and the new invoice. The tool assumes the buyer meets the turnover test and the seller is a resident. GST that is shown separately in the invoice is generally left out of the base. Check the current CBDT guidance with your adviser.
The 206C(1H) overlap is over
Until 31 March 2025 sellers with turnover above INR 10 crore also had to collect tax on sale of goods above INR 50 lakh under section 206C(1H). The Income Tax Department page states that section 206C(1H) does not apply from 1 April 2025, so section 194Q governs. If both once applied to the same sale, the buyer deducted and the seller did not collect. The detail on the retired rule is on the TCS on sale of goods page.
The new Act and section numbers
The Income-tax Act 2025 is in force from 1 April 2026. A tax blog that maps old sections to new places the 194Q rule at section 393(1), serial 8(ii) of the table. The Income Tax Department's own page still describes the rule as section 194Q as amended by the Finance Act 2026. Until your ERP vendor and your adviser agree on the label, keep both references on the voucher. The law and the rate have not changed because of the renumbering. Form numbers may be renumbered too, so check TRACES for the current names. Related certificate: Form 16A.
Last checked: 19 October 2026. Rules checked against the Income Tax Department page on TDS on purchase of goods and a tax-practitioner summary of the Income-tax Act 2025 mapping. Have a chartered accountant confirm before you change vouchers.
Mistakes that attract notices
- Counting the threshold on a single invoice and not on the year's total with that seller.
- Deducting on GST that was shown separately without checking guidance.
- Forgetting advance payments, which trigger deduction too.
- Missing the 5 percent rate when PAN is absent.
- Late deposit. Interest follows.
- Turnover of the previous year is confirmed above INR 10 crore.
- Running purchase total per seller is tracked.
- PAN is on file for every seller.
- Tax is deducted at credit or payment, whichever is earlier.
- Challan deposited by the 7th, or 30 April for March.
- Quarterly return filed and certificates issued.
Frequently asked questions
What is the rate under section 194Q?
0.1 percent on the amount above INR 50 lakh, or 5 percent if the seller does not provide a PAN.
Does 194Q apply to every buyer?
Only to buyers who carry on business and had turnover above INR 10 crore in the preceding financial year, buying from a resident seller.
Is 194Q now section 393?
Under the Income-tax Act 2025, in force from 1 April 2026, secondary sources place it at section 393(1), serial 8(ii). The Income Tax Department page still cites 194Q. Confirm with your adviser.
Is GST included in the base?
Where GST is shown separately in the invoice, guidance has excluded it from the base. Check the current position with your adviser.
What happens if I deduct late?
Interest applies from the date the tax was deductible and a notice may follow. Ask your adviser about relief.