Section 393(1)(k) Purchase TDS for Manufacturing: Payment Code 1012, Section 206C(1H) Overlap (FY 2026-27)

A finance head at a mid-sized auto-component manufacturer pulls the April 2026 purchase ledger — the first month of the new Income Tax Act 2025 regime. Annual procurement is ₹420 crore across 217 vendors. Twenty-six vendors are projected to cross the ₹50-lakh-per-PAN annual threshold during FY 2026-27. The TDS reconciliation question is no longer “which 194Q deductions did we make and did the seller see them in 26AS” — it is “we now operate Section 393(1)(k) with payment code 1012, our biggest vendors are also above ₹10 crore turnover and would otherwise collect Section 394 TCS, who has precedence on each transaction, and how do we reconcile the cross-era March 2026 entries that are still on the legacy 194Q tag.” This is Section 393(1)(k) purchase TDS manufacturing in its first operating quarter.

What Section 393(1)(k) replaces

The Income Tax Act 2025, effective 1 April 2026, consolidates the legacy TDS framework into Section 393, with payment codes 1001-1092 mapping to individual deduction categories. Section 393(1)(k) is the consolidated section for TDS on purchase of goods, replacing legacy Section 194Q of the Income Tax Act 1961. The substance carries over largely unchanged:

• Trigger condition: buyer’s aggregate turnover, gross receipts or sales in the immediately preceding financial year exceed ₹10 crore.
• Vendor-side threshold: aggregate purchase value from a single resident seller crosses ₹50 lakh in a financial year.
• Rate: 0.1% on the amount of purchase consideration above ₹50 lakh.
• Payment code: 1012 (replaces the legacy 194Q tag).
• Timing: at the time of credit or payment, whichever is earlier.
• Deposit: by the 7th of the following month (30 April for March deductions).

The legacy 194Q section number remains operative for cross-era reconciliation of FY 2025-26 deductions and for correction challans raised after April 2026 against those historical entries. The full code map and section-to-code crosswalk is at TDS payment codes 1001-1092 India and the broader regime at Section 393 TDS new Income Tax Act reconciliation.

The Section 394 / 206C(1H) overlap and the precedence rule

The mirror provision on the seller side is Section 394 of the Income Tax Act 2025, replacing legacy Section 206C(1H), payment code 1073. Section 394 requires a seller whose prior-year turnover exceeds ₹10 crore to collect 0.1% TCS on sale-of-goods receipts from a buyer where aggregate sale value to that buyer crosses ₹50 lakh in the financial year.

The structural problem: on many large B2B transactions, both buyer and seller cross their respective ₹10-crore thresholds and the transaction crosses ₹50 lakh, which would mean both the buyer deducts under 393(1)(k) and the seller collects under 394 on the same money — double taxation that the law cannot intend.

The precedence rule resolves it: Section 393(1)(k) (buyer TDS) takes precedence over Section 394 (seller TCS). When the buyer is required to deduct under 393(1)(k), the seller must not collect under 394. The seller stops collecting and the buyer continues deducting.

The mechanics in practice:

The operational instrument is a mutual declaration exchange at the start of each financial year: buyer confirms to seller whether 393(1)(k) applies; seller confirms to buyer whether 394 applies. Where 393(1)(k) wins, the seller documents the precedence and stops the 394 collection. Both parties carry the declaration as part of the vendor/customer master.

The ₹50 lakh threshold mechanics

The threshold is per seller PAN per financial year and resets on 1 April. The reconciliation control is a per-vendor-PAN YTD purchase tracker keyed on PAN (not on vendor code, since a vendor may operate multiple legal entity codes — branch offices, project offices — under a single PAN that must be aggregated for the threshold).

The cumulative is computed on invoice value net of GST where GST is shown separately. The 0.1% deduction kicks in on every invoice from the one that takes cumulative purchase above ₹50 lakh onwards until 31 March, applied to the full invoice value (not just the portion above ₹50 lakh on the threshold-crossing invoice).

Worked example for a vendor with PAN ABCDE1234F supplying steel sheets to a buyer with prior-year turnover ₹85 crore:

A common implementation error is to start deducting from the invoice after the one that crosses the threshold, or to deduct only on the post-threshold portion of the crossing invoice. The position the income tax department has taken under legacy 194Q (and which carries over to 393(1)(k)) is that the deduction applies on the full invoice value from the crossing invoice onwards.

Reconciliation against Form 168 buyer view

Form 168 under the Income Tax Act 2025 is the buyer-side counterpart to Form 26AS — it shows every TDS deduction the buyer has reported, by payment code, by seller PAN, by quarter. The reconciliation control is monthly:

1. Pull the Section 393(1)(k) deduction register from the AP system (payment code 1012, per vendor PAN, per month).
2. Pull Form 168 buyer-view for the same month from the income tax portal.
3. Three-way tie: AP deduction register ↔ TDS challan deposited (7th of following month) ↔ Form 168 entry.
4. On the seller side, the seller’s GSTR-1 outward supply to the buyer must tie back to the underlying purchase invoices that triggered the deduction — a four-way tie that catches both invoice errors and PAN-mismatch errors.

Persistent mismatches surface as Section 393 default notices and require correction challans through TRACES.

Cross-era handling — March 2026 entries on legacy 194Q

A material operational issue in FY 2026-27 is the cross-era boundary. Deductions made up to 31 March 2026 carry the legacy 194Q section tag on the original TDS challan, on Form 26Q, and on the seller’s Form 26AS/AIS. Deductions from 1 April 2026 carry payment code 1012 against Section 393(1)(k).

Three operational consequences:

• Form 26AS / AIS view of the seller: for AY 2026-27, the seller’s Form 26AS shows 194Q deductions; for AY 2027-28, it shows 1012/393(1)(k) deductions. The seller’s ITR claims credit against the appropriate tag for each year.
• Correction challans for FY 2025-26 raised after April 2026: these still go under the legacy 194Q tag, since the original transaction was governed by the 1961 Act. The TRACES correction system must allow the legacy tag for at least three years after April 2026 for assessment-year corrections.
• Reconciliation systems must support dual labels: the AP system and any reconciliation rail must be able to match both labels — 194Q for transactions up to 31 March 2026 and 1012 for transactions from 1 April 2026 — including in a single Form 168 view if a correction challan straddles the boundary.

Why this breaks at scale

A ₹400-crore-procurement manufacturer with 200+ vendor PANs runs roughly 8,000-12,000 purchase invoices a year. Twenty to forty vendors cross the ₹50-lakh threshold during the year. For each of those vendors, every subsequent invoice carries a TDS deduction, a payment code 1012 challan deposit, a Form 168 line, and (for cross-era cases) a parallel legacy 194Q reference. The Section 394 precedence determination must be resolved at vendor-master setup, with a mutual declaration on file. Manual operation of this rail surfaces the same predictable failure modes month after month: deductions missed on the threshold-crossing invoice, deposits delayed past the 7th of the following month (interest at 1.5% per month under Section 201), and Form 168 mismatches that compound across quarters.

Reconciliation software India configured for the Section 393 regime reads each AP invoice in posting sequence, maintains the per-vendor-PAN YTD purchase running total, triggers the 0.1% deduction from the threshold-crossing invoice, and runs the monthly four-way tie against Form 168, the TDS challan, the AP deduction register and the seller’s GSTR-1. The full manufacturing reconciliation pillar is at manufacturing reconciliation in India; the three-way procurement match that produces the underlying invoice stream is at PO-GRN-invoice three-way matching in India and is also available as three-way matching software India. The full new-Act framework with all payment codes is at Section 393 TDS new Income Tax Act reconciliation and the code map at TDS payment codes 1001-1092 India. For the current text of the Income Tax Act 2025 and TDS notifications, the income tax portal is the authoritative source.