income tax

Understanding Section 194Q TDS Regulations for High-Value Purchases

Understanding Section 194Q of the Income Tax Act

Section 194Q of the Income Tax Act requires buyers with a turnover exceeding ₹10 crore in the previous financial year to deduct Tax Deducted at Source (TDS) at a rate of 0.1% on purchases from resident sellers exceeding ₹50 lakh within the same financial year. This provision is designed to improve tax transparency and facilitate compliance for high-value transactions.

Who is Required to Deduct TDS?

Any buyer, including companies, firms, Limited Liability Partnerships (LLPs), etc., whose turnover surpassed ₹10 crore in the preceding financial year is mandated to deduct TDS under this section.

When is TDS Applicable?

TDS must be deducted when the total value of goods purchased from a resident seller exceeds ₹50 lakh within a financial year.

  • The threshold is calculated from April 1st of each year.

TDS Rates Under Section 194Q

The applicable TDS rates under Section 194Q are as follows:

ConditionTDS Rate
Seller provides PAN/Aadhaar0.1%
Seller does NOT provide PAN/Aadhaar5%

When to Deduct and Deposit TDS

  • TDS should be deducted at the earlier of the following:
    • When the payment is credited.
    • When payment (including any advances) is made.
  • The deducted TDS must be deposited by the 7th of the following month.

Exceptions and Non-Applicability

Section 194Q does not apply in the following scenarios:

  • Purchases of imported goods or goods from non-resident sellers.
  • Cases where TDS is deductible under any other section or where Tax Collected at Source (TCS) is collectible under subsections of Section 206C.
  • If both Section 194Q and Section 206C(1H) are applicable, only Section 194Q is enforced.

Compliance and Penalties

To ensure compliance:

  • File quarterly TDS returns using Form 26Q.
  • Issue Form 16A to sellers for the TDS deducted.

Failure to comply may result in interest charges for late deduction or deposit and possible disallowance of expenses.

Example Calculation

For instance, if purchases amount to ₹90 lakh from a seller in the financial year 2025-26, TDS will apply on ₹40 lakh (₹90 lakh - ₹50 lakh) at the rate of 0.1%. Therefore, the TDS amount will be ₹4,000.

Conclusion

Section 194Q is an essential compliance measure for businesses engaged in high-value purchases.

To avoid penalties and the potential disallowance of expenses, ensure timely deduction and deposit of TDS, adhering to current rates and thresholds for the financial year 2025-26.