In this guide
When does Section 194Q apply?
Section 194Q of the Income-tax Act, 1961 applies when a buyer purchases goods from a resident seller. The buyer must have had business sales, gross receipts or turnover of more than ₹10 crore in the financial year immediately before the purchase year.
For purchases in FY 2025-26, check the buyer’s turnover for FY 2024-25. If the buyer meets the turnover test, TDS may apply when purchases from a resident seller exceed ₹50 lakh during FY 2025-26.
| Requirement | General rule for FY 2025-26 |
|---|---|
| Buyer’s turnover test | More than ₹10 crore in FY 2024-25 |
| Seller | Resident of India |
| Purchase threshold | Purchases from that seller exceed ₹50 lakh in FY 2025-26 |
| TDS rate | 0.1% of the amount above ₹50 lakh |
The ₹10 crore test applies to the buyer. The ₹50 lakh threshold is calculated separately for each resident seller by adding up purchases during the financial year. It is not a limit for each invoice.
How much TDS should the buyer deduct?
TDS is generally 0.1% of the purchase amount exceeding ₹50 lakh. For example, if a qualifying buyer purchases ₹80 lakh of goods from one resident seller during FY 2025-26, the amount subject to TDS is ₹30 lakh. TDS would be ₹3,000.
The buyer should track purchases seller by seller. If the annual threshold is crossed, deduct TDS on the amount above ₹50 lakh.
Deduct TDS at the earlier of:
- Crediting the amount to the seller’s account; or
- Paying the seller by any mode.
Advance payments are also covered. If payment or credit has already triggered the deduction, do not wait for the goods to be delivered.
Deposit and report the TDS
For FY 2025-26, TDS deducted under Section 194Q is generally deposited through Challan ITNS 281 within seven days after the end of the month in which it was deducted. Tax deducted in March is generally due by 30 April.
Report the deductions in the quarterly TDS statement, usually Form 26Q, and issue Form 16A to the seller. Check the applicable filing dates and any extensions on the official portal. Keep challan details and reconcile them with the seller and purchase records.
Exceptions and related rules
Section 194Q does not apply to purchases in the year the buyer’s business is established. Other statutory exceptions may apply, so check the parties and transaction before deciding that no deduction is required.
Where tax is deductible under another provision, or tax is collectible under a provision other than Section 206C(1H), Section 194Q may not apply to that transaction. Section 194-O also takes precedence for a transaction on which an e-commerce operator has deducted tax under that section; in that case, the buyer is generally not required to deduct under Section 194Q on the same transaction.
Section 206C(1H), which provided for TCS on sale of goods, does not apply from 1 April 2025. Check whether another TCS provision applies to the specific goods or transaction.
Section 194Q covers transactions under the Income-tax Act, 1961, including FY 2025-26. For a credit or payment on or after 1 April 2026, check the applicable provisions and procedures under the Income-tax Act, 2025. TaxClear’s TDS and TCS return filing guide for Tax Year 2026-27 covers the transition.
Records to keep
Keep records that support the turnover test and TDS calculation, including:
- Buyer’s financial statements or turnover records for FY 2024-25;
- Seller-wise purchase ledgers and invoices for FY 2025-26;
- Payment amounts and dates, including advance payments;
- TDS challans and Form 26Q acknowledgements; and
- Form 16A certificates issued to sellers.
Reconcile these records before filing each TDS statement. If a deduction or statement is late or incorrect, check the correction process and any applicable interest, fee or penalty.
Frequently asked questions
Does the ₹10 crore turnover test apply to the seller?
No. It applies to the buyer and is measured in the financial year immediately before the purchase year.
Is the ₹50 lakh threshold per invoice?
No. Add purchases from each resident seller during the financial year.
Is TDS deducted on the full purchase amount after the threshold is crossed?
No. The general rate is 0.1% of the amount exceeding ₹50 lakh.
Are advance payments included?
Yes. Deduction may be triggered at payment or credit, whichever happens first.
Does Section 194Q apply to FY 2026-27 transactions?
Section 194Q applies to transactions governed by the 1961 Act. For transactions from 1 April 2026, check the applicable provisions under the Income-tax Act, 2025.
