Section 194Q: TDS on Purchase of Goods Explained
- Rashmita Choudhary
- 4 days ago
- 8 min read
Section 194Q requires specified buyers to deduct TDS on the purchase of goods once the threshold of ₹50 lakh is crossed in a financial year. The rule applies only when the buyer’s turnover exceeds ₹10 crore in the preceding year, and the purchase is made from a resident seller. A TDS rate of 0.1% applies on the value exceeding ₹50 lakh, and 5% applies if the seller fails to furnish PAN. The intent is to bring high-value transactions into the reporting net and ensure better compliance. Platforms like TaxBuddy simplify this process by offering automated TDS tracking and filing support for businesses handling large-volume purchases.
Table of Contents
Understanding Section 194Q: Purpose and Scope
Section 194Q was introduced to expand tax reporting on high-value purchases and improve traceability within business transactions. It targets scenarios where large-volume procurement often escapes TDS or TCS systems, ensuring that both buyers and sellers remain accountable for their reporting obligations. The provision places responsibility on buyers crossing specified turnover limits, requiring them to deduct TDS on goods purchased from resident sellers. This mechanism strengthens compliance by capturing transactions long before tax returns or audits occur, creating an early checkpoint in the tax pipeline. Over time, it has evolved into a critical compliance step for entities handling significant procurement operations.
Who Must Deduct TDS Under Section 194Q?
The obligation to deduct TDS under Section 194Q lies exclusively on buyers classified as “specified persons.” A specified buyer must have a turnover exceeding ₹10 crore during the previous financial year. Once this condition is met, all purchases from resident sellers become subject to monitoring, and the moment cumulative purchases cross ₹50 lakh, TDS applies. The provision applies irrespective of the buyer’s business line—whether trading, manufacturing, retail, or service operators dealing with goods procurement. Importers, however, remain outside this framework, as the rule covers only resident-to-resident transactions.
Applicability Thresholds and Turnover Conditions
Two key thresholds determine applicability:
• The buyer’s turnover in the preceding financial year must exceed ₹10 crore.
• Purchases from a single resident seller must exceed ₹50 lakh in the current financial year.
Only the amount crossing ₹50 lakh becomes liable for TDS. The law does not differentiate between types of goods unless specifically excluded under other provisions. Purchases made at multiple intervals from the same seller during the year must be tracked cumulatively to identify when the threshold is breached. Businesses often rely on automated tools, including platforms like TaxBuddy, to monitor these cumulative limits throughout the financial year.
TDS Rate Under Section 194Q
The standard TDS rate prescribed under Section 194Q is 0.1% of the purchase value exceeding ₹50 lakh. This concessional rate applies only when the seller provides a valid PAN. If the seller does not furnish PAN, the rate increases sharply to 5% under Section 206AA. The steep increase is intended to discourage sellers from ignoring documentation requirements and ensures the buyer remains cautious when onboarding new vendors. The rate applies to the taxable purchase component and not the entire invoice amount once the threshold is reached.
When Should TDS Be Deducted? Timing and Trigger Events
The timing of deduction is based on two possible trigger points—whichever occurs earlier:
• At the time of crediting the purchase amount to the seller’s account
• At the time of payment through any mode
This rule prevents deferral strategies where buyers might postpone payments to avoid immediate compliance. Even advance payments attract TDS once the cumulative threshold is crossed. Ledger credits, journal entries, or adjustments—if they represent liability recognition toward the seller—also trigger deduction requirements.
Exclusions Under Section 194Q
Several transactions remain outside the scope of Section 194Q:
• Purchases made from non-resident sellers
• Transactions already subject to TDS under provisions other than 194Q
• Purchases classified as services rather than goods
• Imports and foreign procurements
• Transactions where TCS applies under Section 206C(1H) and TDS has already been deducted
The exclusion related to overlapping tax provisions ensures that buyers do not face duplication of obligations. In situations where multiple provisions appear to apply, Section 194Q usually prevails.
Is GST Included While Calculating TDS Under Section 194Q?
For most transactions, the purchase value considered for TDS under Section 194Q excludes GST, provided the tax component is clearly indicated on the invoice. The deduction is intended to apply to the goods’ intrinsic value rather than the indirect tax component collected on behalf of the government. If GST cannot be segregated—such as in composite billing arrangements—the deduction may be calculated on the gross amount. Buyers commonly maintain internal protocols to isolate GST portions to avoid excessive deduction.
Interaction Between Section 194Q and Section 206C(1H)
Both Section 194Q and Section 206C(1H) govern high-value goods transactions but apply from opposite directions—194Q requires the buyer to deduct TDS, while 206C(1H) requires the seller to collect TCS. When both provisions appear simultaneously applicable, Section 194Q takes precedence. This means if the buyer qualifies under 194Q, the seller must not levy TCS under 206C(1H). Only in cases where the buyer does not meet the turnover threshold does the responsibility shift to the seller under the TCS provision.
Consequences of Non-Compliance With Section 194Q
Non-compliance with Section 194Q can lead to:
• Interest liability for late deduction or late payment • Disallowance of 30% of the purchase value while computing business income under Section 40(a)(ia) • Penalty exposure under Sections 271C and 273
These consequences can significantly impact working capital and profitability for large businesses. Automated compliance reminders on platforms like TaxBuddy help businesses avoid missed deductions and ensure the timely filing of TDS returns.
Required Documentation for Section 194Q Compliance
Documentation ensures transparency during audits and assessments. Businesses must maintain:
• Seller’s PAN details • Purchase invoices and contracts • Cumulative purchase tracking logs • TDS deduction records and challans • Ledger entries reflecting credit or payment
Well-organised records simplify compliance reviews and reduce disputes during departmental verification. Digital solutions, including TaxBuddy’s automated documentation repository, assist in maintaining structured records.
Does Section 194Q Apply to Small Businesses?
Section 194Q does not apply to buyers whose turnover does not exceed ₹10 crore in the preceding financial year. Such entities are fully exempt, regardless of purchase value. However, small sellers supplying to large corporate buyers may still find themselves covered indirectly, as TDS gets deducted on payments received from eligible buyers. Small enterprises should stay aware of the impact on cash flows and reconciliation processes when dealing with large organisations governed by 194Q.
How TaxBuddy Helps With 194Q Compliance
TaxBuddy supports businesses in automating TDS workflows, tracking purchase thresholds, validating PAN availability, and scheduling TDS payment reminders. The platform includes rule-based systems that identify when the ₹50 lakh limit is crossed and adjust calculations automatically. This helps prevent interest costs, penalties, or disallowances. For companies dealing with multiple vendors or recurring transactions, TaxBuddy becomes a reliable compliance partner, reducing manual oversight and ensuring consistency across the financial year.
Conclusion
Section 194Q has become a crucial checkpoint in the tax compliance system for high-value business purchases. Mandating early deduction at the point of credit or payment adds a structured reporting layer and ensures that transactions above the ₹50 lakh threshold remain fully traceable. Businesses with high turnover must stay vigilant with vendor onboarding, PAN validation, threshold tracking, and timely deductions. For those seeking streamlined compliance support, it is advisable to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy offers a flexible filing ecosystem with both self-filing and expert-assisted modes. The self-filing option is built for individuals who prefer completing their return independently using automated data import, pre-filled fields, and intelligent error-checking. The expert-assisted mode is designed for those who want a detailed review, personalised tax optimisation, and end-to-end support from professionals. This dual model ensures that taxpayers across income levels and complexities can choose the filing route that suits their comfort and compliance requirements.
Q. Which is the best site to file ITR? The best site for filing an income tax return is one that combines accuracy, security, and ease of use. Platforms like TaxBuddy provide a structured process with guided steps, automated reconciliations, and compliance checks that help eliminate omissions or mismatches before submission. The availability of expert review, integrated document uploads, refund tracking, and real-time error alerts makes such platforms more reliable than traditional utilities for most taxpayers.
Q. Where to file an income tax return? An income tax return can be filed on the official Income Tax Department e-filing portal or through trusted filing platforms such as TaxBuddy. The department portal is suitable for those comfortable with manual entry and form navigation, while platforms like TaxBuddy simplify the process with pre-filled data, step-wise assistance, automated validation, and optional expert involvement. This helps reduce filing errors and ensures compliance with the latest tax rules.
Q. Is filing ITR mandatory even if income is below the taxable limit? Filing is mandatory when certain conditions are triggered, even if income remains below the basic exemption limit. These include high-value transactions such as foreign travel expenditure above prescribed limits, electricity consumption beyond thresholds, deposits exceeding specified amounts, or ownership of foreign assets. Individuals meeting these conditions must file ITR irrespective of income levels to avoid non-compliance flags or notices.
Q. What documents are required for filing ITR? The documents required vary based on income type but generally include Form 16, AIS/TIS data, bank statements, interest certificates, capital gains reports, rent receipts, housing loan statements, and investment proofs. Salaried individuals require fewer documents, while those with capital gains, business income, or foreign holdings need more detailed financial information. Platforms like TaxBuddy allow users to upload these documents digitally for automated extraction and quick compilation.
Q. How long does the Income Tax Department take to process an ITR? Processing timelines have improved significantly due to system automation. Most ITRs filed with complete details and correct verification are processed within a few days to a few weeks. Complex cases involving capital gains, foreign income, or mismatched data may take longer. Accurate filing through platforms like TaxBuddy helps minimise delays by ensuring clean, error-free submissions.
Q. What happens if incorrect details are entered in the ITR? Incorrect details may lead to processing errors, mismatch notices, reduced refunds, or additional tax demands. If an error is noticed after submission, a revised return can be filed within the permitted timeline under Section 139(5). Filing through guided portals like TaxBuddy reduces the chances of such issues by identifying inconsistencies before the return is submitted.
Q. Can ITR be filed after the due date? Yes, ITR can be filed after the due date as a belated return under Section 139(4). Belated filing attracts late fees under Section 234F and may lead to interest on unpaid taxes. Certain benefits, like carrying forward losses, also become restricted. Platforms like TaxBuddy provide reminders well before the due date to help taxpayers avoid last-minute delays or penalties.
Q. What if tax is deducted but not reflected in Form 26AS or AIS? When TDS is deducted but not visible in Form 26AS or AIS, it usually indicates delayed or incorrect reporting by the deductor. The taxpayer must request the deductor to correct the filing in their TDS return. Filing ITR without the corrected entry may lead to mismatches or reduced credit. TaxBuddy’s automated reconciliation highlights such discrepancies before filing, ensuring the issue is resolved early.
Q. How is a tax refund processed? Refunds are issued once the Income Tax Department completes processing and confirms excess tax paid. Refunds are directly credited to the taxpayer’s pre-validated bank account. The timeframe varies based on case complexity and accuracy of the filed return. Using compliant platforms like TaxBuddy ensures the correct mapping of bank details to avoid refund delays.
Q. What should be done if an income tax notice is received? Receiving a notice does not always indicate a problem. Notices may be issued for verification, mismatch, clarification, or reassessment. The correct approach is to review the notice type, understand the underlying issue, and respond within the specified timeline. A structured response through guided assistance, such as the notice support available on TaxBuddy, ensures that submissions are accurate and compliant with departmental requirements.
Q. Is e-verification necessary after filing ITR? Yes, e-verification is a mandatory step for validating the return. An unverified return is treated as “not filed.” Verification can be completed using Aadhaar OTP, net banking, EVC, or by sending a signed ITR-V to CPC Bengaluru. Filing platforms like TaxBuddy prompt users to complete verification immediately after submission to prevent inadvertent lapses.
