Saturday, July 1, 2023

Understanding Section 194Q: Tax Deducted at Source (TDS) on Purchase of Goods


Section 194Q Applies to Whom?

·         This section applies to a buyer who meets the following conditions:

1.    The buyer's turnover or gross receipts in the previous financial year was more than Rs 10 crore.

2.    The buyer is responsible for making payment to a resident seller.

3.    The payment is for the purchase of goods worth more than Rs 50 lakh.


·         If a buyer had a turnover of more than Rs 10 crore in the financial year ending March 31, 2021, they need to deduct TDS from their resident seller on purchases of goods exceeding Rs 50 lakh in the current financial year 2021-22.

Rate of TDS

·         TDS is deducted at the rate of 0.1% on the amount exceeding Rs 50 lakh in a financial year from a seller from whom the buyer has purchased goods worth more than Rs 50 lakh.

Calculation of TDS

·         TDS is deducted only on the amount exceeding Rs 50 lakh in a financial year from a seller.

·         For example, if a buyer purchased goods worth Rs 60 lakh from a seller, the TDS would be deducted on Rs 10 lakh (i.e., Rs 60 lakh - Rs 50 lakh) at the rate of 0.1%.

Applicability of Section 194Q

·         Section 194Q became effective from July 1, 2021. TDS is deducted only on purchases made after this date. However, the threshold limit of Rs 50 lakh for purchases has to be considered from April 1, 2021.

Role of GST

·         Turnover for the purpose of Section 194Q is calculated excluding GST, while TDS is calculated including GST.

When to Deduct TDS

·         TDS is to be deducted at the time when the amount is credited to the seller's account or paid to them, whichever is earlier.

·         If no advance payment is made, TDS is deducted at the time of purchase. If an advance payment is made, TDS is deducted immediately.

Non-furnishing of PAN

·         If a seller fails to provide their Permanent Account Number (PAN), TDS would be deducted at the rate of 5% instead of 0.1%.

TDS Deposit Due Date

·         TDS is to be deposited on or before the seventh day of the following month in which the TDS is deducted.

TDS Return: Form 26Q

·         The due date for filing TDS return is July 31, October 31, January 31, and May 31, respectively, for each quarter.


·         Section 194Q does not apply when TDS is to be deducted under any other provision of the Income Tax Act. If a transaction is covered by both Section 194O and Section 194Q, only Section 194Q applies.

Amendments under Section 194Q

·         The deduction of TDS occurs when any amount is credited to a 'Suspense account' or any other account forming part of the books of account of the payer.

·         TDS is not applicable for purchases from non-resident sellers.

·         Failure to comply with TDS provisions may lead to the disallowance of expenditure up to 30% of the transaction value.

Section 194Q Declaration Format

·         A format for providing information for deduction of TDS under Section 194Q is given for reference.


·         Section 194Q is a recent addition to the Income Tax Act, effective from July 01, 2021. It applies to buyers who make purchases from Indian sellers exceeding Rs.50 Lakhs in the previous financial year. The TDS rate is 0.1% when PAN card details are provided.

Frequently Asked Questions (FAQs)

1.    Will Section 194Q apply in the case of import of goods?

·         No, it applies only when a buyer has to pay a sum to a resident seller.

2.    What are the consequences of not deducting or depositing the TDS?

·         If TDS is not deducted or deposited, 30% of the amount on which TDS should have been deducted will be added to the individual's income.

Top of Form