Section 194Q — TDS on Purchase of Goods
Section 194Q of the Income Tax Act, 1961 requires a buyer whose total sales, gross receipts, or turnover exceeds Rs. 10 crore in the preceding financial year to deduct TDS at 0.1% on purchase of goods from a resident seller if the aggregate purchase value from that seller exceeds Rs. 50 lakh in a financial year.
Inserted by the Finance Act 2021 and made effective from 1 July 2021, Section 194Q introduced a significant compliance obligation for large buyers of goods in India. The provision essentially mirrors Section 206C(1H), which imposed TCS on sellers, but shifts the compliance burden to buyers who cross the specified turnover threshold.
The mechanics of Section 194Q are relatively straightforward. A buyer qualifies as a deductor if their turnover or gross receipts exceeded Rs. 10 crore in the financial year immediately preceding the year in which the purchase transaction occurs. Once a buyer qualifies, they must deduct TDS at 0.1% on the amount exceeding Rs. 50 lakh paid or credited to a particular seller in that financial year. The threshold is seller-specific — meaning the buyer must track cumulative purchases from each vendor separately.
A critical interplay exists between Section 194Q and Section 206C(1H). To avoid double taxation, the CBDT clarified through Circular No. 13/2021 that when Section 194Q applies, Section 206C(1H) does not. In practice, if the buyer is required to deduct TDS under 194Q, the seller is exempt from collecting TCS under 206C(1H) on the same transaction. Buyers and sellers must therefore determine which provision applies based on their respective turnovers and act accordingly.
The rate of deduction is 0.1%, but if the seller does not furnish their PAN, TDS must be deducted at the higher rate of 5% under Section 206AA. Additionally, if the seller falls within the ambit of Section 206AB (higher TDS for specified non-filers), the applicable rate may be significantly elevated. This makes vendor PAN and ITR filing status verification a routine part of large corporate procurement processes.
Section 194Q does not apply to transactions on which TDS is deductible under any other provision of the Act, to transactions liable to TCS under other provisions, or to imports. It also does not apply to individuals and HUFs below the specified turnover threshold. The provision has materially increased the compliance workload of procurement and accounts payable teams in large Indian corporations, necessitating robust ERP-level tracking of vendor-wise purchase aggregates across the financial year.