Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
Buyer-side TDS on goods purchase under payment code 1031 (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 historical 194Q-versus-206C(1H) priority rule. Misconfiguring any of these produces either under-deduction (default risk for the buyer) or, in legacy records, double-deduction (the supplier also ran 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 1031, 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 historical 194Q-priority rule when the supplier was also subject to 206C(1H), 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 legacy 206C(1H) applicability (cross-era records only). Reconciliation ruleset configured with payment code 1031 (§393(1) Sl. 8(ii)) mapped to legacy 194Q for cross-era matching, 0.1% rate validation, threshold trigger logic, and explicit priority handling against legacy TCS codes.
Form 168 goods-purchase lines fully matched to the AP ledger by supplier, threshold trigger dates documented per supplier, legacy 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 1031 at a glance
| Attribute | Value |
|---|---|
| Payment code | 1031 |
| Parent section | 393 |
| Sub-clause | 393(1) Sl. 8(ii) |
| 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 = 1031 |
What payment code 1031 covers
Payment code 1031 under Section 393(1) Sl. 8(ii) 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) Sl. 8(ii) 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 1031 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/1031 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 1031 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 1031 TDS.
The legacy priority rule: where the same transaction was historically subject to TCS under Section 206C(1H) (seller-collected TCS on sales of goods above ₹50 lakh), payment code 1031’s predecessor (194Q) took priority — the buyer deducted; the seller did not collect TCS. Section 206C(1H) is inapplicable since 1 April 2025 under the Finance Act 2025 proviso; under the Income-tax Act 2025 there is no successor TCS code for goods sale, and Section 194Q / code 1031 / §393(1) Sl. 8(ii) remains the operative TDS provision. For cross-era reconciliation of FY 2024-25 and earlier transactions, the legacy priority rule still governs how duplicate-credit cases are unwound.
What payment code 1031 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) Sl. 8(ii) without changing the 0.1% rate, the ₹10 crore buyer qualifier, the ₹50 lakh per-supplier threshold, or the legacy priority rule against 206C(1H).
Cross-era reconciliation has one subtlety unique to 1031/194Q: 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 1031 — 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 1031
Form 168 surfaces goods-purchase TDS credits under code 1031 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 1031 lines to the AR ledger:
- Threshold trigger month difference: the buyer triggered 1031 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.
- Legacy priority rule unawareness: for cross-era records, the supplier ran 206C(1H) TCS on the same transaction, creating a duplicate credit chain. The buyer’s 194Q/1031 deduction should suppress the seller’s TCS — needs a buyer declaration on file. Going forward (post 1 April 2025), 206C(1H) is inapplicable, so this issue is confined to historical reconciliation.
Common reconciliation issues for payment code 1031
The recurring patterns on code 1031:
- Legacy 194Q-versus-206C(1H) priority confusion. The most common 1031 cross-era issue. Sellers historically ran TCS on transactions where the buyer was also deducting 194Q/1031 — double-counting until corrected. With 206C(1H) inapplicable from 1 April 2025, new-period transactions are no longer exposed to this overlap, but legacy records still need clean-up.
- 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 1031 deduction, but ERP master not updated.
- Capital goods purchases. Capex purchases (machinery, equipment) crossing ₹50 lakh from a single supplier also fall under 1031. 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, 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 1031 are published.
Need a different payment code? Search the lookup.
The TDS Payment Code Lookup widget covers all 18 most-used codes across Sections 392 and 393. Search by code, legacy section, or keyword.
Open the Payment Code Lookup →