Section 194Q: TDS on Purchase of Goods (Buyer Side — 0.1%)

What is Section 194Q?

Section 194Q, effective from 1 July 2021, requires the BUYER (not seller) to deduct TDS at 0.1% on purchase value exceeding ₹50 lakh from a single seller in a financial year.

Objective: Track high-value B2B transactions for tax compliance. Buyer's TDS becomes seller's prepaid tax, claimable while filing ITR.

Applicability — Buyer side

194Q applies when:

• Buyer's turnover > ₹10 crore in immediately preceding FY
• AND purchase from a single seller > ₹50 lakh in current FY
• TDS at 0.1% on the amount exceeding ₹50 lakh (not on full purchase)

Example: Company A (turnover ₹15 cr) buys ₹80 lakh worth from Vendor B in FY 2025-26.

• Threshold: ₹50 lakh — not deductible
• Amount exceeding: ₹80 lakh - ₹50 lakh = ₹30 lakh
• TDS @ 0.1% = ₹3,000

When 194Q does NOT apply

• Buyer's turnover in preceding FY ≤ ₹10 crore
• Purchase from single seller ≤ ₹50 lakh in current FY
• Seller is non-resident (use Section 195 instead)
• Purchase from government (Central/State)
• Goods subject to TCS u/s 206C(1) (e.g., scrap, alcoholic liquor) — those have their own collection

194Q vs 206C(1H) — Avoid double TDS-TCS

Section 206C(1H) makes the SELLER collect TCS at 0.1% on sales above ₹50 lakh to a single buyer (if seller turnover > ₹10 cr). This creates potential overlap with 194Q.

CBDT priority rule: If 194Q applies (buyer's responsibility), then 206C(1H) does NOT apply for the SAME transaction. 194Q takes precedence.

Buyer must inform seller in writing that they're deducting 194Q TDS, so seller doesn't collect 206C(1H) TCS. Otherwise: double tax burden on the same supply.

TDS deposit and return

• Deposit: By 7th of next month (Challan 281)
• Quarterly return: Form 26Q (resident seller)
• TDS certificate (Form 16A): Issue to seller within 15 days of quarterly return filing
• Higher TDS for non-PAN: 5% (instead of 0.1%) if seller doesn't provide PAN

Practical implications

1. Track per-seller purchases — Set up monitoring in accounting system at vendor level
2. Communicate with vendors — Inform when approaching ₹50 lakh threshold so they don't collect 206C(1H)
3. Update vendor master — Capture PAN, GSTIN at onboarding
4. Calculate cumulatively — ₹50 lakh threshold is cumulative for the FY, not per invoice
5. Consider opting out — If both 194Q and 206C(1H) apply, declare which you're following via communication with vendor