If your business buys goods worth crores from suppliers, you might assume TDS is something only your customers worry about when they pay you. But Section 194Q flips the script for large buyers - if your turnover crosses ₹10 crore and your purchases from a single supplier exceed ₹50 lakh in a year, YOU as the buyer must deduct TDS before paying the supplier.
What Is Section 194Q?
Section 194Q requires a buyer of goods to deduct TDS at the time of credit or payment (whichever is earlier) to a resident seller, on the purchase of goods, if certain conditions are met. This provision shifts the compliance burden onto large buyers, complementing the seller-side TCS provision under Section 206C(1H).
Who Is Required to Deduct TDS Under Section 194Q?
| Condition | Requirement |
|---|
| Buyer's turnover/gross receipts | Must exceed ₹10 crore in the financial year immediately preceding the year of purchase |
| Value of goods purchased from a single seller | Must exceed ₹50 lakh in the financial year (TDS applies only on the amount exceeding ₹50 lakh, not the entire purchase value) |
| Seller | Must be a resident (Section 194Q does not apply to purchases from non-resident sellers) |
TDS applies only on the excess over ₹50 lakh. If you purchase goods worth ₹80 lakh from a single supplier in a year, TDS under Section 194Q is deductible only on ₹30 lakh (the amount exceeding the ₹50 lakh threshold), not on the entire ₹80 lakh.
TDS Rate and Timing
- Rate: 0.1% of the purchase value exceeding ₹50 lakh (a higher rate applies if the seller's PAN is not available/invalid, typically 5% under Section 206AA).
- Timing: TDS must be deducted at the time of credit of the amount to the seller's account, or at the time of payment (by cash, cheque, draft, or any other mode), whichever is earlier.
194Q vs 206C(1H): Avoiding Double Compliance
Section 206C(1H) requires a seller with turnover exceeding ₹10 crore to collect TCS at 0.1% on receipts exceeding ₹50 lakh from a buyer. Since both provisions could theoretically apply to the same transaction (buyer deducts TDS under 194Q, seller collects TCS under 206C(1H)), the law provides a tie-breaker:
194Q takes priority over 206C(1H)If a transaction is subject to TDS under Section 194Q, the seller is not required to collect TCS under Section 206C(1H) on the same transaction. In practice, the buyer should inform the seller (often via a declaration) that TDS under 194Q has been/will be deducted, so the seller does not also collect TCS - avoiding double compliance and double cash-flow impact on the same transaction.
What Is "Purchase of Goods" for This Purpose?
Section 194Q applies broadly to purchase of "goods" - this is not limited to any specific category and covers most tangible goods transactions between resident businesses, subject to the turnover and threshold conditions. It does not apply to:
- Transactions already covered under other specific TDS provisions where TDS is deductible under any other section of the Act (to avoid double TDS on the same payment), except in certain overlapping scenarios clarified by CBDT circulars
- Purchases from non-residents
- Transactions on recognized stock exchanges / commodity exchanges in certain notified cases (as clarified by CBDT)
Worked Example
| Particulars | Amount |
|---|
| Buyer's turnover in preceding FY | ₹25 crore (exceeds ₹10 crore threshold - 194Q applies) |
| Total purchases from Supplier X during the year | ₹75,00,000 |
| Threshold | ₹50,00,000 |
| Amount liable for TDS (75,00,000 − 50,00,000) | ₹25,00,000 |
| TDS @ 0.1% on ₹25,00,000 | ₹2,500 |
Compliance Obligations for Buyers
- Deduct TDS at the applicable rate and deposit it with the government within the prescribed due dates (similar to other TDS provisions - generally by the 7th of the following month, with March's TDS due by 30 April).
- File quarterly TDS returns (Form 26Q) reporting Section 194Q deductions.
- Issue a TDS certificate (Form 16A) to the seller, who can claim credit for this TDS against their own tax liability.
- Maintain records of turnover thresholds and supplier-wise purchase values to determine applicability each year.
What If the Buyer Fails to Deduct TDS?
Consequences of non-compliance: Failure to deduct TDS under Section 194Q can result in disallowance of the corresponding expenditure under Section 40(a)(ia) (30% of the expense disallowed in computing business income), interest for delayed deduction/deposit under Section 201, and penalty provisions for TDS defaults.
Frequently Asked Questions
Our company's turnover was ₹8 crore last year. Do we need to deduct TDS under Section 194Q on this year's purchases? ▼
No. Section 194Q applies only if the buyer's total sales, gross receipts, or turnover from business exceeded ₹10 crore in the financial year immediately preceding the year in which the purchase is made. Since your turnover last year was ₹8 crore (below ₹10 crore), Section 194Q would not apply to your purchases in the current year, regardless of how much you purchase from any single supplier.
We buy goods worth ₹45 lakh from one supplier and ₹40 lakh from another supplier in the same year. Does Section 194Q apply? ▼
Section 194Q's ₹50 lakh threshold is applied separately for each seller/supplier, not in aggregate across all suppliers. Since your purchases from each individual supplier (₹45 lakh and ₹40 lakh respectively) are below ₹50 lakh, Section 194Q would not apply to either supplier-relationship in this scenario - even though your total purchases across both suppliers (₹85 lakh) exceed ₹50 lakh.
If both Section 194Q and Section 206C(1H) could apply to our transaction, who deducts/collects - us as the buyer, or the seller? ▼
Where Section 194Q applies (i.e., the buyer is liable to deduct TDS), the seller is relieved from collecting TCS under Section 206C(1H) on that same transaction - 194Q takes precedence. As the buyer, you should communicate to your seller (often via a written declaration) that you are deducting TDS under 194Q, so the seller does not also collect TCS, avoiding duplication of compliance and cash outflow on the same transaction value.