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Published on:

May 12, 2025

Alankar Mishra

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Basics of GST

Section 194Q of Income Tax Act: Applicability, TDS Rate, Examples & Key Updates for 2025

If your annual turnover exceeds ₹10 crore and you are availing goods from an Indian seller wherein the value exceeds ₹50 lakh, congratulations on stepping into the realm of TDS under Section 194Q.

Section 194Q of the Income Tax Act now prescribes a Tax Deducted at Source (TDS) liability on the purchase of goods, not services. With the 2025 amendment, which removed the overlap with Section 206C(1H), 194Q stands as the sole applicable TDS provision on such purchases. Let’s examine its full range, scope, impact, eligibility, and the timeline for deduction.

What is Section 194Q of the Income Tax Act?

Section 194Q is relevant for TDS on purchase of goods which is applicable w.e.f 1st July 2021. It aims to cover high value economic activities and widen the tax net while allowing for tax collection at source even before income has been declared for the purpose of taxation.

Eligibility Criteria for Section 194Q

You are required to deduct TDS under Section 194Q if:

Your annual turnover in the previous financial year exceeds ₹10 crore, and

You purchase goods (not services) worth more than ₹50 lakh from a resident seller in the current financial year.

Important: Even capital goods purchases are covered. The seller must be a resident of India. Non-resident seller purchases are excluded.

TDS Rate under Section 194Q

Standard Rate: 0.1% on the amount exceeding ₹50 lakh.

If PAN is not furnished: 5% instead of 0.1%.

This is notably less severe than the general rule of (20%) for non-PAN cases.

How is TDS Calculated?

Only the value above ₹50 lakh per seller per financial year is taxable.

Example:

If you buy from a seller in three instalments of ₹20 lakh each (₹60 lakh total), TDS will apply on:

₹60 lakh – ₹50 lakh = ₹10 lakh
TDS = 0.1% of ₹10 lakh = ₹1,000

How to Deduct TDS on Swipe?

In Swipe, while creating the invoice when value is above ₹50 lakh and you are looking to claim threshold limit exception for not deducting TDS then you need to create two different invoice which is one invoice up to ₹50 lakh and another invoice remaining amount. (under the 1st invoice TDS is not applicable because it is within the threshold limit and for the next invoice TDS of 0.1% will be applicable)

TDS under 194Q is to be deducted at the earliest of:

Payment date to the seller, OR

Booking/crediting the amount in books (even if to a suspense account).

Advance payments? TDS is required immediately on payment.

TDS Deposit Due Dates

Monthly deposits: On or before the 7th of the following month.

For March: Deposit allowed up to 30th April.

Missing deadlines can result in interest and penalties under the Income Tax Act.

TDS Return: Form 26Q

You must file a quarterly TDS return via Form 26Q. Here are the due dates:

Quarter Ending	TDS Return Due Date
30 June	31 July
30 September	31 October
31 December	31 January
31 March	31 May

Exceptions to Section 194Q

Section 194Q doesn’t apply when:

The transaction is already covered under another TDS section, like 194O (e-commerce).

The seller is a non-resident.

TDS has already been deducted under another specific provision.

Regarding TCS u/s 206C(1H): From FY 2025-26, TCS no longer applies where 194Q is applicable, eliminating the previous dual compliance requirement.

GST Considerations

When calculating applicability:

Exclude GST from turnover while checking the ₹10 crore threshold.

Exclude GST from the invoice while calculating the 0.1% TDS amount.

Other Important Points to Remember

TDS applies to both revenue and capital purchases above ₹50 lakh.

If the buyer fails to deduct TDS, 30% of the purchase expenses may be disallowed under Section 40(a)(ia).

TDS applies as per seller and not consolidated.

Section 194Q Declaration Format (From Seller to Buyer)

Here’s a simple declaration sellers may issue to avoid double compliance:

[On Company Letterhead]

To,
[Buyer Name & Address]

Sub: Declaration under Section 194Q of the Income Tax Act, 1961

Dear Sir,
Regarding your request for TDS declaration, we confirm the following:

1. You may deduct TDS @0.1% on the sale consideration exceeding ₹50 lakh as per Section 194Q.

2. We confirm that we will not charge TCS under Section 206C(1H) from 01.07.2021.

3. Our PAN is [XXXX], and we have filed returns for the past three assessment years.

Sincerely,
[Authorised Signatory]
[Company Name]

Practical Example Recap

Imagine this scenario for FY 2024-25:

Buyer’s turnover in FY 2023-24 was ₹12 crore.

Purchases goods worth ₹80 lakh from an Indian seller.

Deduct TDS on ₹30 lakh (₹80L – ₹50L) @ 0.1% = ₹3,000.

Action Step: Deduct TDS at payment or booking time and deposit it before the 7th of the next month.

Conclusion

Section 194Q serves as the umbrella TDS provision for all purchases of goods exceeding ₹50 lakh from a single seller in a financial year. With the removal of TCS under Section 206C(1H) in the 2025 amendment, compliance has become easier, although missing it can be expensive.

For sellers with large procurement volumes, maintaining a seller-wise ledger and automating TDS through ERP or accounting systems is highly advisable.

FAQs

1. What is Section 194Q of the Income Tax Act?

Though purchases made from April 1st, 2021 contribute towards the ₹50 lakh limit, Section 194Q was implemented on July 1st, 2021.

2. When does Section 194Q apply?

It applies when a purchaser’s business activities in the previous financial year and an entity’s purchases from a particular seller in the current financial year are greater than ₹10 crore and ₹50 lakh respectively.

3. How to claim the threshold limit of ₹50 lakh u/s 194Q?

To claim a threshold limit exemption for not deducting TDS on invoices over ₹50 lakh in Swipe, make two separate invoices: one for the amount up to ₹50 lakh and another for the remainder. (TDS is not applicable for the first invoice because it is within the threshold level; nevertheless, TDS of 0.1% will be applicable for the second invoice.)

4. What is the TDS rate under Section 194Q?

The seller’s TDS rate sits at 0.1% on amounts exceeding ₹50 lakh, and if they do not provide PAN, this increases to 5%.

5. When is Section 194Q applicable?

Although purchases from April 1, 2021, count towards the ₹50 lakh threshold, Section 194Q came into force on July 1, 2021.

6. Is Section 194Q applicable to service transactions?

No, Section 194Q pertains only to the purchase of bonds and does not extend to services.

7. What happens if both Section 194Q and 206C(1H) apply?

As stated in the 2025 Budget, in the case of both scenarios occurring, only Section 194Q will hold relevance and TCS under 206C(1H) will not be applicable.