Income Tax · TDS on Purchases

194q Of Income Tax Act (India, 2026)

Updated for 2026 · Claw Editorial

Section 194Q makes a large buyer deduct a small amount of tax (TDS) when it buys goods from a resident seller. It applies only if the buyer is big enough and the yearly purchases from that seller cross a limit. This guide sets out who it covers, the threshold, the rate, when to deposit the tax, and how it works alongside the seller side rule under section 206C(1H).

01What section 194Q is

Section 194Q was added to the Income Tax Act to bring high value trade in goods into the tax trail. It requires a buyer to deduct a small slice of TDS on the money paid to a resident seller for goods, once the buyer crosses a size test and the purchases from that seller cross a value test in the year.

The idea is simple: the government sees the purchase reported in the buyer tax statement, which it can match against the sale the seller reports. It is a reporting and matching tool, not an extra tax on the goods. The amount deducted is adjusted against the seller tax, just like any other TDS.

Note on the law: the Income-tax Act 2025 is replacing the 1961 Act, and section numbers may change. Confirm the exact section and assessment year before you act on any reference here.

02Who has to deduct

Section 194Q applies to a buyer whose total sales, turnover or gross receipts from business crossed a set limit in the financial year just before the year of purchase.

• The buyer size test: turnover above Rs 10 crore in the immediately preceding financial year. A smaller buyer is outside 194Q.
• Resident seller: the seller must be a resident. Purchases from a seller outside India are dealt with under other rules.
• Goods, not services: 194Q is for the purchase of goods. Services have their own TDS sections.

If you do not cross the turnover test, this section is not your problem. If you do, you have to track your purchases seller by seller.

03Threshold, rate and timing

The deduction only kicks in on the part of the yearly purchase value that goes over Rs 50 lakh for a single seller.

So on a purchase of Rs 70 lakh from one seller in the year, TDS is charged only on Rs 20 lakh (the amount over Rs 50 lakh), not on the whole Rs 70 lakh. For the related rule on rent, see section 194I on TDS on rent.

04194Q TDS versus 206C(1H) TCS

There is a matching seller side rule, section 206C(1H), under which a large seller collects tax (TCS) on the sale of goods. A single transaction can look like it falls under both. The law sorts this out with an order of priority.

• If the buyer is liable to deduct TDS under 194Q and actually deducts it, the seller does not also collect TCS under 206C(1H) on that transaction.
• So 194Q takes the front seat. The practical step is for the buyer and seller to agree in writing who is handling the tax, so it is not done twice or missed.

05How to comply, step by step

If you are a buyer over the turnover test, the routine looks like this.

1. Check your turnover for the previous financial year against the Rs 10 crore test.
2. For each resident seller, track running purchases through the year and watch the Rs 50 lakh mark.
3. From the point purchases cross Rs 50 lakh, deduct at the notified rate on the excess at credit or payment, whichever is earlier.
4. Deposit the TDS by the due date and keep the challan.
5. File the quarterly TDS return (Form 26Q) and issue the TDS certificate to the seller.

For another low rate purchase style section, compare section 194P, which deals with senior citizens and pension, to see how differently each TDS section is framed.

06Common mistakes

• Deducting on the whole amount: TDS is only on the value above Rs 50 lakh per seller, not on the full purchase.
• Forgetting the no-PAN rate: if the seller has not given a valid PAN, the higher rate applies, so collect the PAN early.
• Double tax with the seller: both 194Q and 206C(1H) running on the same deal because nobody confirmed who was handling it.
• Missing the deposit date: late deposit draws interest and can delay the seller credit.

194Q is not hard once you see it as a per-seller running total: watch the Rs 50 lakh line, deduct on the excess, deposit on time.

07How Claw Tax helps

Claw Tax and Accounts is an online tax, GST and accounting service for India that connects you with a verified chartered accountant at a fixed, published price, with a Claw reviewer checking every filing before it is submitted.

A business with a steady in-house accounts team can run 194Q on its own, and the arithmetic itself is not difficult. Claw Tax is for when you want the quarterly TDS returns prepared and filed correctly, the seller agreements on 194Q versus 206C(1H) set up cleanly, and a reviewer catching short deduction before it turns into a mismatch notice.

A verified chartered accountant can prepare and file your TDS returns at a fixed, published price (TDS returns start from Rs 1,999 a quarter, see the page), with reminders before each due date and a Claw reviewer checking the filing first. See the services and prices at clawlaw.in/tax.

This is general information, not tax advice; a verified CA handles the specifics of your case. For a shortlist of online tax help, see the best online CA and tax consultant services in India.

08Frequently asked questions