TDS Under Section 194Q: Complete Compliance Guide for 2025

Master TDS deduction under Section 194Q on purchase of goods — who must deduct, applicable rate, due dates, Form 26Q filing, and consequences of non-compliance for FY 2025-26.

What Is Section 194Q and Who Must Deduct?

Section 194Q of the Income Tax Act, 1961, inserted by the Finance Act 2021 and effective from 1 July 2021, requires a buyer of goods to deduct TDS at 0.1% when purchases from a single seller exceed ₹50 lakh in a financial year.

Three Conditions for Applicability

All three conditions must be satisfied simultaneously:

1. 1Buyer's turnover in the immediately preceding financial year exceeds ₹10 crore (gross receipts or turnover from business or profession).
2. 2Cumulative purchases from a single seller (identified by PAN) in the current financial year cross ₹50 lakh.
3. 3The seller is a resident — non-residents are covered under Section 195, not 194Q.

The ₹50 lakh threshold is seller-wise and resets on 1 April each year. If a buyer purchases goods worth ₹40 lakh from Seller A and ₹60 lakh from Seller B, only Seller B's account triggers 194Q.

TDS Rate and PAN-Based Variations

TDS is deducted only on the amount exceeding ₹50 lakh — not on the entire purchase value.

Example: If cumulative purchases from one seller in FY 2025-26 reach ₹80 lakh, TDS applies on ₹30 lakh only → TDS = ₹30,00,000 × 0.1% = ₹3,000.

GST Treatment

Deduct TDS on the invoice value excluding GST, provided GST is separately indicated on the invoice. If GST is not separately shown, TDS applies to the gross invoice amount. Verify invoice format before computing the deduction — this is a common area of over-deduction.

Interaction with Section 206C(1H)

Where the buyer is liable to deduct TDS under 194Q, the seller's obligation to collect TCS under Section 206C(1H) does not apply. Only one mechanism operates — and 194Q takes precedence. Sellers must check their buyers' turnover to determine whether they should stop collecting TCS.

How to Deposit TDS: Challan ITNS 281

TDS deducted under 194Q must be deposited using Challan No. ITNS 281 by the 7th of the month following deduction. For deductions in March, the due date is extended to 30 April.

Step-by-Step Deposit Process

1. 1Visit the TIN-NSDL portal and select Challan ITNS 281.
2. 2Choose Major Head 0020 (companies) or 0021 (non-companies).
3. 3Select Nature of Payment: 194Q – Purchase of Goods.
4. 4Enter the Assessment Year, PAN of the deductee, and TDS amount.
5. 5Pay via net banking or authorised bank branch.
6. 6Note the BSR Code and Challan Serial Number — mandatory for Form 26Q filing.

Quarterly Filing: Form 26Q

Section 194Q TDS is reported in Form 26Q (non-salary TDS return). Quarterly due dates:

Each deductee entry requires: PAN, full name, gross purchase amount, TDS amount deducted, and challan details. An incorrect or absent PAN results in the credit not reflecting in the seller's Form 26AS / AIS, leading to demands and reconciliation disputes.

Common Filing Mistakes

• Not deducting on advance payments: 194Q applies on whichever is earlier — the date of credit to the seller's account or the date of payment. Advance payments for goods are therefore covered.
• Omitting GST from base correctly: Over-deducting by including GST in the base when GST is separately billed increases the seller's compliance burden and may require correction through a revised return.
• Threshold carry-forward error: Some buyers wrongly carry the prior year's cumulative total into the new FY. The ₹50 lakh threshold resets to zero on 1 April every year.

Consequences of Non-Compliance

Failure to deduct or deposit TDS under Section 194Q carries significant financial consequences:

• Section 201(1A) interest: 1% per month for non-deduction; 1.5% per month for deduction but non-deposit.
• Section 271C penalty: Up to the amount of TDS not deducted.
• Section 40(a)(ia) disallowance: 30% of the purchase expenditure is disallowed as a deduction if TDS was not deducted — a major hit to the buyer's taxable profit.
• Prosecution u/s 276B: In extreme cases, wilful failure to deposit TDS can attract rigorous imprisonment of 3 months to 7 years.

For CA firms, advising clients proactively on 194Q is far less costly than dealing with demands and disallowances during assessments.

How corpus Helps

Tracking 194Q compliance manually across multiple vendor accounts is error-prone and time-consuming. corpus automates the entire workflow:

• Vendor-wise threshold alerts: corpus monitors cumulative purchases per PAN and alerts you when a vendor approaches ₹50 lakh, so no deduction is missed.
• Automatic TDS computation: Once the threshold is crossed, corpus calculates TDS on each subsequent invoice — correctly excluding GST where billed separately.
• Challan reconciliation: Match deposited challans against deductions in one screen; discrepancies are flagged in real time.
• Form 26Q data export: Generate quarter-wise, deductee-level data ready for upload to the TRACES portal with a single click.
• Section 206AB integration: corpus cross-checks vendors against the Income Tax Department's non-filer list, automatically applying the higher rate where required.

CA firms managing 30+ buying clients particularly benefit from corpus's centralized dashboard, which surfaces every client nearing the ₹50 lakh threshold before the compliance deadline.

Conclusion

Section 194Q shifts the compliance spotlight to buyers — and the stakes are high, with 30% expenditure disallowance as the price of getting it wrong. Building a reliable system to track vendor-wise purchases, compute the correct TDS rate, deposit on time, and file accurate Form 26Q returns is essential for every large buying entity.

Start your free trial of corpus today and take the complexity out of Section 194Q — from threshold monitoring and auto-deduction to challan reconciliation and TRACES-ready returns.