Section 194Q: TDS on Purchase of Goods, and Who Has to Deduct
Priya Sharma
· Corporate Legal & Compliance Counsel· 3 min read
Section 194Q put a deduction obligation on buyers of goods for the first time, and it overlaps deliberately with the seller's TCS obligation. Understanding which one applies prevents both double deduction and a missed obligation.
- ✓Applies to buyers with turnover above ₹10 crore in the preceding year.
- ✓0.1 per cent on purchase consideration exceeding ₹50 lakh per seller per year.
- ✓Deduction is on the amount above ₹50 lakh, not the whole purchase.
- ✓Takes precedence over the seller's TCS obligation under 206C(1H).
Who deducts
A buyer whose total sales, gross receipts or turnover exceeded ten crore rupees in the financial year immediately preceding the year of purchase.
The obligation arises on purchase consideration exceeding fifty lakh rupees from any one seller during the year, at 0.1 per cent on the excess over fifty lakh.
Timing of deduction
At the time of credit of the sum to the account of the seller, or at the time of payment, whichever is earlier. Credit to a suspense account counts as credit to the seller's account.
This differs from Section 206C(1H), which operates on receipt of consideration — so the two provisions bite at different moments as well as on different parties.
Priority over TCS
Where both Section 194Q and Section 206C(1H) could apply, 194Q prevails. The second proviso to 206C(1H) provides that the seller does not collect where the buyer is liable to deduct and has done so.
Buyers crossing the threshold should notify their sellers in writing that they will be deducting under 194Q, which lets the seller stop collecting TCS and avoids a duplicate on the same transaction.
Consequences of failure
Interest at one per cent a month from the date deduction was due to the date of deduction, and one and a half per cent from deduction to deposit. Section 40(a)(ia) disallows thirty per cent of the purchase in computing business income.
On a large purchase the disallowance is material, and it reverses only in the year the tax is eventually paid.
Frequently asked questions
### Who must deduct TDS under 194Q?
A buyer whose turnover exceeded ten crore rupees in the preceding financial year, on purchases of goods exceeding fifty lakh rupees from any single seller during the year, at 0.1 per cent on the amount above fifty lakh.
### Does 194Q or 206C(1H) apply?
Section 194Q takes precedence. Where the buyer is liable to deduct and does so, the seller does not collect TCS. Buyers should confirm in writing to sellers that they are deducting, to prevent duplication.
### Is TDS deducted on the whole purchase value?
No, only on the amount exceeding fifty lakh rupees from that seller in the financial year. This mirrors the TCS provision and differs from most other TDS sections.
Related Dyopact Tools & Templates
Frequently Asked Questions
Who must deduct TDS under 194Q?
A buyer whose turnover exceeded ten crore rupees in the preceding financial year, on purchases of goods exceeding fifty lakh rupees from any single seller during the year, at 0.1 per cent on the amount above fifty lakh.
Does 194Q or 206C(1H) apply?
Section 194Q takes precedence. Where the buyer is liable to deduct and does so, the seller does not collect TCS. Buyers should confirm in writing to sellers that they are deducting, to prevent duplication.
Is TDS deducted on the whole purchase value?
No, only on the amount exceeding fifty lakh rupees from that seller in the financial year. This mirrors the TCS provision and differs from most other TDS sections.
Priya Sharma
Corporate Legal & Compliance CounselSpecializing in commercial contract litigation, Section 138 NI Act recovery, commercial property leases, and MSMED Act compliance.