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Buyer-side TDS on goods purchase under payment code 1012 (formerly Section 194Q) sits at the intersection of three triggers — buyer's prior-year turnover ₹10 crore, current-year cumulative purchase from a supplier ₹50 lakh, and the 194Q-versus-206C(1H) priority rule. Misconfiguring any of these produces either under-deduction (default risk for the buyer) or double-deduction (the supplier also runs TCS, creating credit duplication).
Reconciliation joins the buyer's accounts-payable ledger (supplier invoices and payments) with the TDS challan register and Form 168 lines on a composite key of deductor TAN (buyer), payment code 1012, quarter, and deductee PAN (supplier). The matching engine maintains per-supplier cumulative-purchase counters resetting on April 1 each FY, validates the 0.1% rate on the above-threshold portion only, enforces the 194Q-priority rule when the supplier is also subject to 206C(1H)/Section 394, and tracks the buyer's prior-year turnover qualifier.
Buyer master annotated with prior-year turnover (₹10 crore qualifier). Supplier master annotated with PAN, GSTIN, year-to-date purchase counter, and a flag for 206C(1H)/Section 394 applicability. Reconciliation ruleset configured with payment code 1012 mapped to legacy 194Q for cross-era matching, 0.1% rate validation, threshold trigger logic, and explicit priority handling against TCS code in the 1075 range.
Form 168 goods-purchase lines fully matched to the AP ledger by supplier, threshold trigger dates documented per supplier, priority rule applied to suppress duplicate TCS where applicable, and a clean audit pack showing every above-threshold purchase line with the running cumulative balance and the TDS computed on the incremental amount.
Quick reference: Payment Code 1012 at a glance
| Attribute | Value |
|---|---|
| Payment code | 1012 |
| Parent section | 393 |
| Sub-clause | 393(1)(k) |
| Legacy section | 194Q |
| Rate | 0.1% on purchase value above ₹50 lakh per supplier per FY |
| Threshold | Buyer’s prior-year turnover above ₹10 crore AND per-supplier annual purchase above ₹50 lakh |
| Applicability | Large-turnover buyers deducting on goods purchases from resident suppliers |
| Effective from | April 1, 2026 |
| Form 168 description | Purchase of goods |
| Challan | ITNS 281, payment code field = 1012 |
What payment code 1012 covers
Payment code 1012 under Section 393(1)(k) captures TDS deducted by a large-turnover buyer on purchase of goods from a resident supplier. The deductor is the buyer (a departure from most TDS sections, where the deductor is the payer of services or rent); the deductee is the supplier. The substantive coverage is the same as legacy Section 194Q: every form of goods purchase — raw materials, components, finished goods, capital goods, consumables — where the buyer-supplier relationship crosses both the buyer-turnover and the per-supplier-purchase thresholds.
The Section 393(1)(k) definition mirrors 194Q: any person, being a buyer who is responsible for paying any sum to any resident for purchase of any goods of value or aggregate value exceeding ₹50 lakh in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, deduct an amount equal to 0.1% of such sum exceeding ₹50 lakh as income tax. The buyer-turnover qualifier — gross turnover, sales, or receipts in the immediately preceding FY exceeding ₹10 crore — gates whether the buyer is required to deduct in the first place.
A worked example for FY 2026-27: A mid-market manufacturing company with FY 2025-26 turnover of ₹85 crore (above ₹10 crore qualifier) buys raw material from a steel supplier. Cumulative purchase value across April–June 2026 reaches ₹62 lakh. The ₹50 lakh threshold is crossed at some point in June. TDS at 0.1% is deducted on the ₹12 lakh above-threshold portion (₹1,200). For every subsequent purchase from the same supplier through March 2027, 0.1% TDS applies on the full incremental value. Challans carry payment code 1012 under Section 393.
Rate, threshold, and applicability rules
The 0.1% rate is the lowest TDS rate in the regime, deliberately calibrated to be a compliance-tagging mechanism rather than a revenue-collection mechanism. The point of 194Q/1012 is to capture data — every above-threshold goods purchase becomes visible to the tax department through the buyer’s Form 26Q filing.
Both the ₹10 crore prior-year turnover qualifier and the ₹50 lakh per-supplier threshold must be met. A buyer with ₹8 crore prior-year turnover is not required to deduct under 1012 regardless of purchase volumes. A buyer with ₹50 crore prior-year turnover but only ₹40 lakh annual purchase from a given supplier is not required to deduct on that supplier (though they would on a different supplier where purchases cross ₹50 lakh).
The ₹50 lakh threshold is per supplier per FY — the counter resets on April 1. A supplier from whom a buyer purchased ₹2 crore worth of goods in FY 2025-26 starts FY 2026-27 at zero; the first ₹50 lakh of purchases in FY 2026-27 are exempt from 1012 TDS.
The priority rule: where the same transaction is also subject to TCS under Section 394 (formerly 206C(1H) — seller-collected TCS on sales of goods above ₹50 lakh), payment code 1012 takes priority. The buyer deducts under 1012; the seller does not collect TCS. This avoids double-counting on the same transaction. Sellers must verify with each large buyer whether the buyer is opting to deduct under 1012 (above ₹10 crore turnover) or whether the seller continues to collect TCS (buyer below ₹10 crore turnover).
What payment code 1012 replaced (1961 Act → 2025 Act)
Section 194Q under the 1961 Act was introduced from July 1, 2021 specifically to complement 206C(1H) TCS on sales of goods. The 2025 Act absorbs 194Q into Section 393(1)(k) without changing the 0.1% rate, the ₹10 crore buyer qualifier, the ₹50 lakh per-supplier threshold, or the priority rule against 206C(1H) (now under Section 394 in the 1075 code range).
Cross-era reconciliation has one subtlety unique to 1012/194Q: the ₹50 lakh per-supplier counter does not reset at the Act cutover. A buyer who had purchased ₹40 lakh from a supplier in FY 2025-26 (under 194Q) and continues purchasing into FY 2026-27 starts FY 2026-27 with a fresh ₹50 lakh counter under code 1012 — because the per-supplier threshold is per FY, not per Act. The Section 393 TDS reconciliation framework covers cross-era matching details.
Form 168 reconciliation for payment code 1012
Form 168 surfaces goods-purchase TDS credits under code 1012 from the supplier’s perspective. For a supplier with several large-buyer customers, expect one Form 168 stream per buyer TAN, starting from the FY 2026-27 quarter when each respective buyer’s cumulative purchase crossed ₹50 lakh.
Pitfalls when joining Form 168 code 1012 lines to the AR ledger:
- Threshold trigger month difference: the buyer triggered 1012 at ₹52 lakh cumulative; the supplier’s records show that cumulative was hit one invoice later. Usually a settlement-date versus invoice-date difference.
- GST-inclusive base: the 0.1% applies to the invoice gross including GST.
- Priority rule unawareness: the supplier ran 206C(1H)/Section 394 TCS on the same transaction, creating a duplicate credit chain. The buyer’s 1012 deduction should suppress the seller’s TCS — needs a buyer declaration on file.
Common reconciliation issues for payment code 1012
The recurring patterns on code 1012:
- 194Q-versus-206C(1H) priority confusion. The single most common 1012 issue. Sellers running TCS on transactions where the buyer is also deducting 1012 — double-counting until corrected.
- Year-end true-up. Buyer’s prior-year turnover slips below ₹10 crore after a slow year — the buyer-qualifier fails in the next FY, no 1012 deduction, but ERP master not updated.
- Capital goods purchases. Capex purchases (machinery, equipment) crossing ₹50 lakh from a single supplier also fall under 1012. Often overlooked because capex sits under fixed-asset accounting, not regular AP.
- GST-inclusive base mismatch. TDS on goods purchase value includes GST.
For more on buyer-side TDS reconciliation, see TDS reconciliation software and reconciliation software India.
For the full set of codes across Sections 392 / 393 / 394 / 413, see the TDS payment codes 1001–1092 master reference. Authoritative text is on the Income Tax India e-filing portal, where the Income Tax Act 2025 enrolled text and CBDT notifications on payment code 1012 are published.
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