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The finance analyst gets an auditor query at 4pm on Friday — 'you have not deducted TDS on this vendor under Section 194Q, please explain'. Or the CFO forwards a note from the tax consultant flagging the same. The vendor ledger shows a Rs 62 lakh cumulative purchase from one seller since 1 April. Nobody on the team recalls setting up the deduction. The Form 26Q for the quarter is due in two weeks. The question is not what to do — it is why is this happening at all, and how far back does it go.
Section 194Q of the Income-tax Act 1961 (Section 393(1) code 1031 from 1 April 2026 under the Income-tax Act 2025) applies when two preconditions are met simultaneously. Precondition one — the buyer's turnover in the immediately preceding financial year exceeds Rs 10 crore. Precondition two — the buyer's aggregate purchase value from a single seller in the current financial year, measured on the taxable value excluding GST from 1 April, exceeds Rs 50 lakh. On the invoice or payment event where the cumulative crosses Rs 50 lakh, the buyer deducts TDS at 0.1 percent on the incremental value above Rs 50 lakh, and on every subsequent purchase from that seller in the same financial year at the time of credit or payment (whichever is earlier). The seller's turnover is irrelevant to the buyer's obligation. Where the seller is a State Government or another exempt-income entity, CBDT Circular 13/2021 disapplies the section.
A PAN-anchored supplier master with each vendor's PAN keyed to all their state GSTINs (multiple GSTINs of one seller aggregate to the PAN). A running cumulative purchase register from 1 April, per seller, on the taxable value of goods (excluding GST per CBDT Circular 20/2021). A threshold-crossing flag that identifies the exact invoice or payment event where the cumulative goes above Rs 50 lakh. A standing Section 194Q declaration to each vendor at the start of the financial year to hold the mutual-exclusion posture against Section 206C(1H) TCS. Form 26Q quarterly filing with seller-PAN-wise deduction detail, and — from 1 April 2026 — Section 393(1) code 1031 tagging on every deduction leg.
A quarter-end Section 194Q reconciliation pack listing each vendor above the Rs 50 lakh cumulative, the exact threshold-crossing month, the incremental value above Rs 50 lakh, the TDS deducted per invoice, the TDS deposited with challan reference, and the Form 26Q filing base. A year-end reconciliation matches your Section 194Q deduction ledger to each vendor's Form 26AS so the seller can claim your deduction as their own advance-tax credit without a follow-up query. A Section 200A intimation from the CPC-TDS is defensible with the invoice-level cumulative register showing the exact threshold-crossing event and the incremental deduction base.
The CFO forwards an email from the auditor at 4pm on a Friday — “why are we not deducting TDS under Section 194Q on this vendor?” You pull the vendor ledger. Since 1 April, your company has bought Rs 62 lakh from this one specialty chemical supplier. Nobody set up the TDS deduction. The Form 26Q for the quarter is due in two weeks. The confusion is not what you should do next — the confusion is why this is coming up at all when it has never come up before.
This is the plain-English walkthrough of why Section 194Q of the Income-tax Act 1961 is asking you to deduct, how the Rs 50 lakh threshold is actually measured, and where in the ledger and portal you look next.
Quick answer
Section 194Q applies when two preconditions are met at the same time: (a) your company’s turnover in the preceding financial year exceeded Rs 10 crore, and (b) your aggregate purchase value from any one seller in the current financial year exceeds Rs 50 lakh (measured on the taxable value, excluding GST, from 1 April). The moment both preconditions are met, you deduct TDS at 0.1 percent on the incremental purchase value above Rs 50 lakh and on every subsequent purchase from that seller for the rest of the financial year, at the time of credit to the seller’s account in your books or at the time of payment, whichever is earlier.
If your Rs 62 lakh cumulative purchase from one vendor is the trigger, the deduction base is the Rs 12 lakh above Rs 50 lakh — 0.1 percent of Rs 12,00,000 works out to Rs 1,200 in TDS on that vendor, and every future invoice from that vendor this year carries 0.1 percent at the invoice or payment date.
The five most common reasons Section 194Q hits
1. You crossed Rs 50 lakh aggregate with one seller in the current financial year
This is the most common trigger and the one that surprises finance teams the most. The Rs 50 lakh threshold is not per invoice, not per month, not per purchase order — it is the running cumulative across the whole financial year, from 1 April, per seller PAN. The moment the cumulative goes above Rs 50 lakh, the deduction fires. If your ledger shows Rs 20 lakh in April, Rs 20 lakh in May, and Rs 22 lakh in June, you crossed the threshold in June — the exact invoice or payment event that took you over is the threshold-crossing event, and TDS applies on the Rs 12 lakh above the threshold plus every subsequent purchase from that seller in the same financial year.
Where to look: the accounts-payable purchase register for the vendor since 1 April. Sum the taxable value of goods (exclude GST — see CBDT Circular 20/2021 dated 25 November 2021). If the sum exceeds Rs 50 lakh, that vendor is on the Section 194Q list for the rest of the financial year.
2. Your company’s turnover in the preceding financial year exceeded Rs 10 crore
This is the buyer-side precondition and it is applied on your business as a whole, not on the specific vendor or the specific purchase. If your turnover in FY 2025-26 was Rs 12 crore, you meet the precondition for FY 2026-27. If your turnover in FY 2025-26 was Rs 8 crore but you have grown into a Rs 15 crore business this year, Section 194Q does not apply this year — you look at last year’s turnover, not the current year. The precondition is set on 1 April of each financial year based on the immediately preceding year’s audited numbers.
Where to look: your last-year audited profit-and-loss account, the “total sales, gross receipts or turnover” figure. If this crossed Rs 10 crore, you are in the Section 194Q buyer bracket for the current financial year.
3. A single invoice took you across Rs 50 lakh mid-year
This is the surprise case. The vendor was outside your Section 194Q universe last month because your cumulative was Rs 45 lakh. This month, a Rs 15 lakh invoice takes the cumulative to Rs 60 lakh. TDS applies on the Rs 10 lakh above the threshold — deduct 0.1 percent (Rs 1,000) at the time of credit to the seller’s account, or when you pay, whichever is earlier. Every subsequent invoice from that vendor in the same financial year attracts 0.1 percent, calculated on the invoice’s taxable value, again at the credit or payment event.
What to do: if you already booked the invoice without the deduction, issue the deduction on the current or next payment and hold a working paper explaining the mid-invoice threshold-crossing. The TDS mismatch estimator is one way to model the Form 26AS impact for the seller so you can pre-empt their query.
4. Your seller has small turnover — but you still deduct
Section 194Q is a buyer-side obligation and the seller’s turnover does not release you. If you meet both preconditions (Rs 10 crore preceding-year turnover, Rs 50 lakh aggregate from that seller), you deduct — even if the vendor is a Rs 3 crore small business. This is different from the seller-side Section 206C(1H) obligation, which is triggered by the seller’s turnover exceeding Rs 10 crore. When both would apply on the same transaction, CBDT Circular 13/2021 dated 30 June 2021 gives precedence to the buyer’s Section 194Q — the buyer deducts, the seller does not collect TCS on that transaction, and this is normally confirmed in writing at the start of the financial year via a standing Section 194Q declaration from buyer to seller.
Where to look: your standing declarations file. If you have not issued a Section 194Q declaration to the vendor, the seller may be collecting TCS at 0.1 percent on the same transaction in parallel — double collection tied up as a working-capital refund at year-end.
5. The seller is a State Government — you do not deduct
The one case where Section 194Q does not apply on the buyer despite meeting both preconditions. CBDT Circular 13/2021 clarifies that Section 194Q does not apply where the seller is a person whose income is exempt from income-tax under any provision of the Act or under any other Act passed by Parliament. State Government income is exempt from Union taxation under Article 289 of the Constitution, so a payment for a State-imposed mining lease royalty, mineral extraction charge, or similar State-authority payment is outside the Section 194Q net. The same carve-out extends to Central Government payments, to Section 10 exempt entities (a notified charitable trust or mutual fund), and to Corporations established under a Central Act with income declared exempt (like the Reserve Bank of India).
The Section 194Q on limestone royalty for cement plants is the worked treatment of exactly this exemption route.
The one to escalate first — Section 40(a)(ia) disallowance
If Section 194Q applies and you have not deducted, or you deducted and did not deposit within the due date, Section 40(a)(ia) of the Income-tax Act 1961 disallows thirty percent of the purchase expenditure in computing income under “Profits and gains of business or profession.” For a buyer with a Rs 5 crore annual Section 194Q purchase base, an inadvertent non-deduction on the full base triggers a Rs 1.5 crore income addition — a corporate-tax exposure at the applicable rate that is material to the year’s financials.
The escalation is to the tax consultant and the CFO, not to the AP analyst — the Section 40(a)(ia) exposure is a computed-income question that the finance function has to hold before the statutory audit sign-off, and the fix (deposit the TDS before the return-filing due date under Section 139(1)) has a hard calendar deadline that the auditor tracks.
Alongside Section 40(a)(ia), watch for Section 200A intimations from the CPC-TDS on mis-coded or short-deducted Form 26Q filings, and the Section 234E late-filing fee of Rs 200 per day for delayed Form 26Q submission (capped at the TDS amount itself).
From 1 April 2026 — the Section 393 code change
The Income-tax Act 2025, effective 1 April 2026, consolidates the TDS provisions of the Income-tax Act 1961 into Section 393. The purchase-of-goods deduction moves to Sl. No. 8(ii) of the Section 393(1) table and carries payment code 1031 — the direct successor to Section 194Q. Every substantive parameter (Rs 10 crore buyer turnover threshold, Rs 50 lakh per-seller threshold, 0.1 percent rate, credit-or-payment timing, mutual-exclusion against Section 206C(1H), State Government carve-out) is unchanged. Your Form 26Q coding, however, changes — from Q1 FY 2026-27 filing onwards, this deduction leg must carry Section 393(1) code 1031. The Section 393 payment code finder is the fastest way to confirm the new code for any deduction category, and the TDS payment codes 1001 to 1092 article catalogues the full cross-era mapping.
When your manual tracking outgrows itself
For a controller managing 20 anchor vendors, a spreadsheet-based cumulative purchase register is workable — refresh the pivot table monthly, flag the vendors approaching Rs 50 lakh, deduct on the threshold-crossing invoice. For a mid-market manufacturer running 200 to 500 active vendors across multiple state units with parallel Section 194C, Section 194J, Section 194H and Section 194O deductions running through the same AP process, the spreadsheet-based approach starts to leak — missed threshold-crossing events, wrong-section classification, and Form 26Q reconciliation mismatches against Form 26AS that surface as Section 200A intimations three months later.
The moment your Section 194Q register runs across more than 50 vendors and you are chasing threshold-crossing dates by hand, the manual process becomes the failure mode itself. TDS reconciliation software treats the per-PAN cumulative register as a continuously-refreshed first-class output and holds the Form 26Q-to-Form 26AS reconciliation as a live view rather than a quarter-end forensic exercise.
Go deeper
For the full technical treatment of a Section 194Q buyer-side workflow — PAN-anchored supplier master, threshold-crossing month arithmetic, mutual-exclusion register against Section 206C(1H), Form 26Q quarterly filing base, Section 393(1) code 1031 tagging from April 2026 — read the Section 194Q buyer-side reconciliation for a specialty chemical procurement panel article. For the mineral royalty and State Government exemption case walked through end-to-end for a cement plant paying limestone royalty to the State Mining Department, see the Section 194Q on limestone purchase and mining lease reconciliation for cement plants article. For the parallel iron-ore case in the steel sector, the Section 194Q on iron-ore purchase and mining lease reconciliation for steel plants article. And for the Income-tax Act 2025 cross-era coding reference across all TDS sections, the TDS payment codes 1001 to 1092 article catalogues the full Section 393(1) mapping.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Section 194Q, Income-tax Act 1961 — TDS on purchase of goods. Inserted by the Finance Act 2021, effective 1 July 2021. A buyer whose total sales, gross receipts or turnover from business exceeds ten crore rupees in the financial year immediately preceding the current financial year must deduct tax at 0.1 percent of the sum paid to a resident seller for the purchase of goods, on the amount exceeding fifty lakh rupees in aggregate in the financial year. The deduction is at the time of credit to the seller's account in the buyer's books or at the time of payment, whichever is earlier.
- ▸ CBDT Circular 13/2021 dated 30 June 2021 — Guidelines under Section 194Q of the Income-tax Act 1961. Clarifies (a) the mutual exclusion between the buyer's Section 194Q obligation and the seller's Section 206C(1H) TCS obligation on the same transaction — where both would apply, the buyer's Section 194Q takes precedence; (b) the fifty-lakh threshold is measured from 1 April of the financial year in which the section applied, not from 1 July 2021; and (c) Section 194Q does not apply where the seller is a person whose income is exempt from income-tax under any provision of the Act (such as a State Government whose income is exempt under Article 289 of the Constitution) or under any other Act passed by Parliament.
- ▸ CBDT Circular 20/2021 dated 25 November 2021 — Additional guidelines under Section 194Q. Clarifies that the fifty-lakh threshold and the 0.1 percent deduction are measured on the taxable value of goods excluding goods and services tax. Advance payments before invoice raise the TDS liability at time of payment. E-auctions, presumptive-income buyers, and buyers with income computed under specific schemes are covered.
- ▸ Section 206C(1H), Income-tax Act 1961 — Tax collection at source on sale of goods. A seller whose turnover in the preceding financial year exceeds ten crore rupees must collect TCS at 0.1 percent on the sale consideration exceeding fifty lakh rupees per buyer in the financial year. Where the same transaction attracts both Section 194Q (buyer-side TDS) and Section 206C(1H) (seller-side TCS), CBDT Circular 13/2021 gives precedence to the buyer's Section 194Q obligation, and the seller does not collect TCS on that transaction.
- ▸ Section 40(a)(ia), Income-tax Act 1961 — Disallowance of expenditure for failure to deduct TDS. Where a buyer is required to deduct TDS under Section 194Q but fails to deduct, or deducts and fails to deposit within the due date, thirty percent of the purchase expenditure is disallowed in computing income under the head 'Profits and gains of business or profession'. For a buyer with an annual Section 194Q purchase base of Rs 5 crore, an inadvertent non-deduction on the full base triggers a Rs 1.5 crore income addition — a material corporate-tax exposure.
- ▸ Section 393(1), Income-tax Act 2025 — Sl. 8(ii) purchase of goods, payment code 1031 — The Income-tax Act 2025 consolidates the tax-deducted-at-source provisions of the Income-tax Act 1961 with effect from 1 April 2026. Section 393(1) is the consolidated TDS omnibus. Sl. No. 8(ii) carries payment code 1031 for the 0.1 percent deduction on purchase of goods — the direct successor to Section 194Q. Every Form 26Q filing from 1 April 2026 for the purchase-of-goods deduction leg must carry the Section 393(1) code 1031.