194Q TDS is 0.1% that a large buyer deducts on purchases of goods from one resident seller, on the part of the year's purchases above ₹50 lakh. Only buyers whose turnover in the preceding financial year was above ₹10 crore have to do it.
From 1 April 2025 the matching TCS by sellers under section 206C(1H) was removed, so for FY 2025-26 this buyer-side deduction is the only one on ordinary goods purchases. For tax year 2026-27 the same rule is part of section 393 of the 2025 Act. It sits alongside the other business TDS items in the TDS rate chart.
Quick facts
Rate
0.1% with PAN; 5% withoutPurchase limit
₹50 lakh from one seller in the year; TDS only on the excessBuyer test
Turnover above ₹10 crore in the preceding yearSeller
Resident onlyWhen
At credit or payment, whichever is firstReturn
Form 26Q for FY 2025-26; Form 140 from tax year 2026-27TCS 206C(1H)
Removed from 1 April 2025
194Q TDS rate and applicability
| Test | Rule |
|---|---|
| Buyer's turnover in FY 2024-25 | Above ₹10 crore from sales, gross receipts or turnover of the business |
| Seller | Resident; imports and non-resident sellers are outside 194Q |
| Purchases from that seller in FY 2025-26 | Above ₹50 lakh |
| Rate with seller's PAN | 0.1% of the amount above ₹50 lakh |
| Rate without PAN | 5% |
A business in its first year has no preceding year turnover, so 194Q does not apply to it in that year. Every year starts afresh: the turnover test and the ₹50 lakh count reset each year.
When 194Q does not apply
- Where tax is deductible on the same payment under another TDS section, that section applies instead.
- Purchases of securities and commodities traded through recognised stock or commodity exchanges, and electricity traded on power exchanges, are left out under CBDT guidance.
- Goods bought from a non-resident, including imports.
- Services. A works contract or a job done to your design is under 194C; professional or technical services under 194J.
Sellers often ask buyers for a written note confirming whether 194Q applies. Keep it with the purchase file.
TDS on purchase of goods above 50 lakhs with example
A steel trader buying from one mill. The trader's turnover in FY 2024-25 was ₹25 crore, so 194Q applies for FY 2025-26. Purchases from the mill, before GST:
June: ₹30 lakh. Total so far ₹30 lakh, below the limit, no TDS.
September: ₹40 lakh. Total ₹70 lakh. The part above ₹50 lakh is ₹20 lakh. TDS at 0.1% = ₹2,000.
December: ₹20 lakh. All of it is above the limit. TDS = ₹2,000.
Result: ₹4,000 deducted across the year, on ₹40 lakh of purchases above the threshold. The September deduction goes to the government by 7 October, the December one by 7 January, and both appear in the quarterly Form 26Q.
GST and advance payments under 194Q
| Situation | Amount for TDS |
|---|---|
| TDS made when the invoice is credited to the seller | Value without GST |
| TDS made on an advance before the invoice | Full advance, since GST cannot be split out yet |
| Advance already taxed, invoice booked later | No second deduction on the same amount |
Most buyers deduct at credit, so the base is the taxable value on the invoice. Set the accounting software to track the running total per seller PAN, because a seller with several branches still counts as one.
194Q under the Income-tax Act, 2025
Any purchase credited or paid from 1 April 2026 belongs to tax year 2026-27 and are governed by section 393 of the 2025 Act, which holds most TDS items in a single table. The 0.1% rate, the ₹50 lakh limit and the ₹10 crore buyer test carry over. The turnover test for tax year 2026-27 uses FY 2025-26 turnover. The quarterly return changes from Form 26Q to Form 140. People still search for 194Q, so accounts teams will see both labels for a while; the new Act's codes are what the return asks for.
Who is the buyer and who is the seller
The buyer must deduct whether it is an individual, a company, an LLP or a firm, as long as the ₹10 crore turnover test is met. The seller does not need to meet any turnover test. For defaults, interest is 1% a month for not deducting and 1.5% a month for late deposit, as on the TDS interest page.
194Q mistakes and fixes
| Error | Fix |
|---|---|
| Deducting on the whole yearly purchase | Deduct only on the amount above ₹50 lakh |
| Applying 194Q in the first year of business | No preceding year turnover, so no 194Q that year |
| Deducting on GST at invoice stage | Use the value without GST |
| Seller collecting TCS under 206C(1H) in FY 2025-26 | That TCS was removed from 1 April 2025 |
| Seller has no PAN | Deduct at 5%, not 0.1% |
Treat this as a general explanation of 194Q, not advice for your business. The rules are amended often; a chartered accountant or the official portal can confirm your position.
Sources we checked
- Income-tax Act, 1961, section 194Q
- CBDT Circular 13 of 2021
- Income-tax Act, 2025, section 393
- Income-tax Act, 1961, section 206AA
Frequently asked questions
What is the 194Q TDS rate?
The rate is 0.1% of purchases from one seller above ₹50 lakh in the year. If the seller has no PAN, the rate is 5%.
Who must deduct 194Q TDS?
Any buyer whose turnover was above ₹10 crore in the preceding financial year. The seller's size does not matter.
Is TDS on purchase of goods deducted on the full amount or the excess?
Only on the excess. If purchases from a seller total ₹80 lakh in the year, TDS is on ₹30 lakh.
What is the 194Q new section as per the Income Tax Act 2025?
There is no separate 194Q number now. Since 1 April 2026 the rule is one item in section 393 of the 2025 Act, which lists most TDS payments in a table. Rates and limits are unchanged.
Does 206C(1H) still apply alongside 194Q?
No. TCS on sale of goods under section 206C(1H) was dropped from 1 April 2025, so only 194Q remains.