Last reviewed: 25 September 2026. The long-running confusion between TDS under Section 194Q and TCS under 206C(1H) is settled - from 1 April 2025 the TCS on sale of goods is gone, leaving only the buyer-side TDS. From 1 April 2026 that TDS sits in section 393(1), Table S.No. 8(ii) of the Income-tax Act, 2025 (old 194Q). The rate, threshold and turnover test carry over unchanged. This guide explains who must deduct, the rate and threshold, how GST and advances are treated, the exclusions, the consequences of getting it wrong, and how to set it up cleanly in your books.
At a glance
Transition: which law applies to which payment
TDS follows the Act in force when the amount is credited or paid, whichever is earlier. Anything credited or paid up to 31 March 2026 stays under the 1961 Act, and so do defaults and proceedings for FY 2025-26.
| Item | Credited or paid up to 31 March 2026 | Credited or paid from 1 April 2026 |
|---|---|---|
| Charging provision | Section 194Q | Section 393(1) Table S.No. 8(ii) |
| No-PAN rate of 5% | Section 206AA | Section 397(2) |
| Quarterly statement | Form 26Q | Form 140 |
| 30% disallowance for default | Section 40(a)(ia) | Section 35(b)(i) |
| Assessee in default and interest | Section 201 / 201(1A) | Section 398 / 398(3)(a) |
| Lower deduction certificate | Not available (section 197 did not cover 194Q) | Check whether section 395(1)(a) covers Table S.No. 8(ii) |
The Rs 50 lakh threshold runs per seller per financial year, so purchases in FY 2025-26 do not carry forward: the count restarts on 1 April 2026.
How the provision works
| Item | Section 393(1) Table S.No. 8(ii) (old 194Q) |
|---|---|
| Who is liable | Buyer, turnover > Rs 10 crore in the preceding FY |
| Trigger | Purchases from a resident seller > Rs 50 lakh in the year |
| Rate | 0.1% on value above Rs 50 lakh (5% if no PAN) |
| On GST | Excluding GST if shown separately; full amount on advances |
| Timing | At credit or payment, whichever is earlier |
| Deposit and return | By the 7th of the next month; tax deducted in March by 30 April. Quarterly Form 140 (Form 26Q for FY 2025-26) |
Worked example 1: a straightforward year
Your company had turnover of Rs 15 crore last year and buys goods worth Rs 80 lakh from a supplier this year. TDS applies on Rs 80 lakh minus Rs 50 lakh = Rs 30 lakh at 0.1% = Rs 3,000, deducted at payment or credit and deposited with the monthly challan.
Worked example 2: an advance with GST, threshold crossed mid-year
A buyer with FY 2025-26 turnover of Rs 25 crore buys from one supplier in FY 2026-27. GST is shown separately on every invoice.
| Date | Event | Cumulative purchases | TDS |
|---|---|---|---|
| Apr to Sep 2026 | Invoices of Rs 45 lakh plus GST, credited | Rs 45 lakh | Nil: below Rs 50 lakh |
| 10 Oct 2026 | Advance of Rs 11.8 lakh paid before the invoice | Rs 56.8 lakh | On the advance, TDS runs on the full amount paid, so the excess over Rs 50 lakh is Rs 6.8 lakh. TDS: Rs 680 |
| 25 Oct 2026 | Invoice for that advance: Rs 10 lakh plus Rs 1.8 lakh GST | No change | Nil: already deducted on the advance |
| 20 Nov 2026 | Invoice of Rs 20 lakh plus Rs 3.6 lakh GST, credited | Rs 76.8 lakh | 0.1% of Rs 20 lakh, excluding GST: Rs 2,000 |
The Rs 680 is deposited by 7 November and the Rs 2,000 by 7 December 2026. Both go into the Form 140 statement for October to December, due 31 January 2027. Had the buyer waited for the invoice instead of deducting on the advance, the default would already have started on 10 October.
What is excluded
The provision does not apply to imports (non-resident sellers), transactions in securities and commodities on recognised exchanges, electricity, or transactions already covered by another TDS/TCS provision. For FY 2025-26 there is no lower-deduction certificate route, so the buyer must deduct at the prescribed rate.
Purchases from a seller outside India are tested under section 195 (section 393(2) from 1 April 2026), usually with Forms 15CA and 15CB before the remittance; see our Form 15CA/15CB checklist. Indian subsidiaries buying from their overseas parent can use our foreign subsidiary accounting and FEMA support to keep the TDS, transfer-pricing and FEMA records consistent.
Consequences of non-compliance
Failure to deduct can lead to disallowance of 30% of the expenditure under section 35(b)(i) of the 2025 Act (old 40(a)(ia)), plus interest at 1% per month for non-deduction and 1.5% for late deposit under section 398(3)(a) (old 201(1A)). For FY 2025-26 defaults, the 1961 sections still apply, although interest for any period after 1 April 2026 is charged under the new Act. Build the threshold check into your purchase process to avoid this.
Frequently asked questions
Is TCS on sale of goods (206C(1H)) still applicable?
No. Section 206C(1H) was withdrawn from 1 April 2025 and has no equivalent in the Income-tax Act, 2025, so sellers no longer collect TCS on the sale of goods. Only the buyer-side TDS applies: section 194Q for FY 2025-26 and section 393(1) Table S.No. 8(ii) from 1 April 2026.
Who must deduct TDS on purchase of goods?
A buyer whose business turnover exceeded Rs 10 crore in the immediately preceding financial year, on purchases of goods from a resident seller exceeding Rs 50 lakh in the year.
What is the rate and threshold?
0.1% on the value of purchases above Rs 50 lakh from a seller in the year. If the seller has not furnished a PAN, the rate is 5% (section 206AA for FY 2025-26; section 397(2) of the 2025 Act from 1 April 2026).
Is TDS deducted on the GST component?
Where GST is shown separately on the invoice, TDS is deducted on the value of goods excluding GST. For advance payments, TDS is on the whole amount.
Does 194Q apply to imports?
No. The provision applies to purchases from a resident seller. Imports from a seller outside India are outside its scope; payments to non-residents are tested under section 195 (section 393(2) from 1 April 2026) instead.
Are any goods excluded?
Yes - transactions in securities and commodities through recognised exchanges, electricity, and cases where tax is deductible under another TDS provision or collectible under 206C (other than 1H) are outside 194Q.
Can a seller apply for a lower deduction certificate?
Not for FY 2025-26: section 197 of the 1961 Act did not cover section 194Q, so there was no Form 13 lower or nil deduction certificate and the buyer deducts at the prescribed rate. For purchases from 1 April 2026, check whether section 395(1)(a) of the 2025 Act extends to Table S.No. 8(ii) before relying on a certificate.
When is the TDS deposited and reported?
At credit to the seller or payment, whichever is earlier. Deposit by the 7th of the next month, except tax deducted in March, which is due by 30 April. Report it in the quarterly statement: Form 26Q for FY 2025-26 and Form 140 for FY 2026-27.
What happens if a buyer does not deduct?
30% of the expenditure can be disallowed (section 40(a)(ia) for FY 2025-26; section 35(b)(i) of the 2025 Act from tax year 2026-27), and interest applies at 1% per month for non-deduction and 1.5% for late deposit (section 201(1A); section 398(3)(a) for periods after 1 April 2026), besides being treated as an assessee in default.
How should I set up 194Q in my accounting system?
Flag each supplier once cumulative purchases cross Rs 50 lakh in the year, start deducting from that point on the excess, collect PANs to avoid the 5% rate, and stop tracking 206C(1H) which no longer applies.
What if the purchase is made through an e-commerce operator?
CBDT Circular 13/2021 says that where a transaction falls under both section 194-O and section 194Q, tax is deducted under section 194-O by the e-commerce operator, not by the buyer under 194Q. The same two provisions sit in section 393(1) Table S.No. 8(v) and 8(ii) from 1 April 2026.
Does TDS apply on purchases from a seller whose income is exempt?
Under CBDT Circular 13/2021, section 194Q does not apply where the seller's income is wholly exempt, but it still applies where only part of the seller's income is exempt. Keep the seller's exemption evidence on file.
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