TDS on Purchase of Goods under Section 194Q for FY 2025-26: ₹50 Lakh Limit, 0.1% Rate, and What Changed When TCS on Sales Was Withdrawn

Section 194Q was introduced in 2021 to bring large business-to-business purchases of goods into the TDS net, and it arrived alongside an already-existing seller-side provision — TCS on sale of goods under Section 206C(1H) — that covered the same transactions from the other end. The overlap produced four years of vendor declarations, circulars, and reconciliations to establish which party withheld. The Finance Act 2025 ended it: Section 206C(1H) ceased to apply from 1 April 2025, and for FY 2025-26 the buyer’s deduction under 194Q is the only provision on goods.

This is the section as it now stands, for the businesses large enough to be caught by it.

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Who has to deduct

Section 194Q applies to a buyer whose total sales, gross receipts, or turnover from business exceeded ₹10 crore in the immediately preceding financial year. The test is on the buyer, and on last year’s figures: a company that crossed ₹10 crore in FY 2024-25 is a 194Q deductor for the whole of FY 2025-26, from its first qualifying purchase in April.

The seller must be a resident. Purchases from a non-resident — imports — are outside 194Q entirely.

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The limit and the rate for FY 2025-26

	Rule
Threshold	Aggregate purchases from the same seller exceeding ₹50 lakh in the financial year
Base	Only the amount above ₹50 lakh — not the whole aggregate
Rate	0.1%
No PAN	5% under Section 206AA (not the usual 20%)
When	At credit of the purchase to the seller’s account or at payment, whichever is earlier — including credit to a suspense account

The excess-only base is the point most often missed in the other direction. On ₹80 lakh of purchases from one vendor, TDS is 0.1% of ₹30 lakh — ₹3,000 — not 0.1% of ₹80 lakh. The ₹50 lakh is counted from 1 April, including purchases made before the buyer noticed the threshold approaching.

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What is excluded

Section 194Q gives way where another provision already applies, and carves out a few markets:

• Transactions covered by TDS under any other section. A works contract under 194C, a professional fee under 194J, rent under 194I — these are not purchases of goods and are deducted under their own sections. The common boundary case is job-work: a contractor manufacturing to your specification from your material is 194C; buying finished goods from a supplier who sources their own material is 194Q.
• Securities and commodities transacted through a recognised stock or commodity exchange.
• Electricity, renewable energy certificates, and energy-saving certificates traded through registered power exchanges.
• Imports — purchases from a non-resident seller.

Purchases of capital goods — plant, machinery, vehicles — are purchases of goods and are within 194Q if the seller and threshold tests are met. Buyers who confine the section to raw material and stock-in-trade under-deduct.

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The GST question

The CBDT’s position is that where GST is indicated separately on the invoice, TDS under 194Q is computed on the value excluding GST. Where the purchase is credited before an invoice is available — a provisional credit or a goods-received entry — and the GST component cannot yet be separated, deduct on the amount credited and adjust when the invoice arrives. Purchase returns are adjusted against subsequent purchases from the same seller for the threshold; TDS already deducted on returned goods is not refundable through the TDS system but can be adjusted against the next deduction for that seller.

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What changed on 1 April 2025

Until 31 March 2025, a seller with turnover above ₹10 crore collected TCS at 0.1% under Section 206C(1H) on receipts above ₹50 lakh from a buyer, unless the buyer was liable to deduct under 194Q — in which case the buyer’s deduction took precedence and the seller stood down. Every large vendor relationship required a declaration of which side applied, and every mismatch produced reconciliation work at both ends.

The Finance Act 2025 omitted Section 206C(1H) with effect from 1 April 2025. For FY 2025-26:

• Sellers no longer collect TCS on sale of goods, whatever their turnover.
• Buyers above ₹10 crore deduct under 194Q, as before.
• The buyer-seller declarations that governed the overlap are no longer needed for goods.
• Sellers still see the buyer’s 194Q deduction in Form 26AS and claim it as TDS credit.

TCS under other clauses of Section 206C — scrap, timber, motor vehicles above ₹10 lakh, overseas remittances under LRS, and the rest — continues. Only sub-section (1H) on goods was withdrawn.

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When to deposit and what to file

Step	Timing
Deposit	By the 7th of the following month; March deductions by 30 April
Return	Form 26Q quarterly — 31 July, 31 October, 31 January, 31 May
Certificate	Form 16A within 15 days of the return due date

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Three worked examples

Example 1 — The threshold test. A trading company with FY 2024-25 turnover of ₹14 crore buys ₹45 lakh of goods from a supplier during FY 2025-26. Below ₹50 lakh from that seller — no TDS, though the company is a 194Q deductor for its other vendors.

Example 2 — The excess base. The same company buys ₹1.2 crore from another supplier across the year, GST shown separately. TDS applies once cumulative purchases pass ₹50 lakh, on the excess: 0.1% of ₹70 lakh — ₹7,000 — deducted progressively as each purchase after the threshold is credited.

Example 3 — The 194C boundary. The company sends its own fabric to a stitching unit and pays ₹90 lakh for the finished garments. This is job-work on the customer’s material — Section 194C at 1% or 2%, not 194Q. Had the unit supplied garments made from its own fabric, the same ₹90 lakh would be a purchase of goods under 194Q at 0.1% on ₹40 lakh.

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What a miss costs

Default	Consequence
Failure to deduct	Interest at 1% per month from the date deductible
Deducted but not deposited	Interest at 1.5% per month to the date of deposit
Late Form 26Q	₹200 per day under Section 234E, capped at the TDS
Expense disallowance	30% of the purchase disallowed under Section 40(a)(ia)

The rate is a tenth of a percent; the disallowance is thirty percent. A ₹2 crore purchase from a single vendor carries ₹15,000 of TDS on the excess — and, if missed, a ₹60 lakh addition to the buyer’s taxable income. No other TDS section has a ratio between the tax and the penalty for missing it that is remotely as severe, which is why 194Q compliance is worth automating rather than remembering.

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Frequently asked questions

Who is required to deduct TDS under Section 194Q?

A buyer whose business turnover, gross receipts, or sales exceeded ₹10 crore in the immediately preceding financial year, purchasing goods from a resident seller. The test is on the buyer’s previous-year figures, not the current year’s.

Is TDS under 194Q on the whole purchase or only above ₹50 lakh?

Only on the amount by which aggregate purchases from that seller in the financial year exceed ₹50 lakh. On ₹80 lakh of purchases, TDS is 0.1% of ₹30 lakh.

Does TCS on sale of goods still apply in FY 2025-26?

No. Section 206C(1H) was withdrawn with effect from 1 April 2025. Sellers no longer collect TCS on goods; buyers above ₹10 crore deduct under 194Q, and that is the only provision on goods for the year.

Is TDS under 194Q computed on the GST-inclusive value?

No, where GST is shown separately on the invoice — deduct on the value excluding GST. Where a purchase is credited before the invoice is available, deduct on the amount credited and adjust once the invoice is received.

Do capital goods purchases attract 194Q?

Yes. Plant, machinery, vehicles, and other capital goods are goods; if the buyer and threshold tests are met and no other TDS section applies, 194Q applies to them.

A vendor manufactures goods for us from our own material. Is that 194Q?

No. Manufacturing to your specification from material you supply is “work” under Section 194C, deducted at 1% or 2%. Section 194Q applies only where the supplier sources the material and sells you finished goods.

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Related reading

• TDS Rate Chart FY 2025-26 (AY 2026-27)
• TDS on Contractors — Section 194C: the 194C/194Q boundary
• Automated Compliance — TDS on a monitored calendar
• Outsourced Accounting & Bookkeeping
• Compliance Calendar FY 2025-26