Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 194Q of the Income-tax Act governs TDS on purchase of goods.
This guide sets out the TDS rate under Section 194Q, the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 194Q?
Section 194Q requires a buyer to deduct TDS on the purchase of goods where the buyer's turnover in the previous year exceeded ₹10 crore.
Rate, threshold and who deducts
| Nature of payment | Purchase of goods |
|---|---|
| TDS rate | 0.1% on the value exceeding the threshold (5% without PAN) |
| Threshold | Purchases above ₹50,00,000 from a single seller in the year |
| Who deducts (deductor) | Buyer with turnover over ₹10 crore |
| Whose income (deductee) | Resident seller of goods |
| Time of deduction | At credit or payment, whichever is earlier |
Key points
- Section 194Q takes precedence over TCS under 206C(1H) where both could apply.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on purchase of goods at credit or payment, whichever is earlier.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 194Q appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Who deducts under 194Q?
Large buyers (turnover over ₹10 crore) deduct 0.1% on annual purchases from a seller above ₹50 lakh.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.