When must a buyer deduct TDS on purchase of goods under Section 194Q

Question

My company purchases goods worth crores from a single supplier and I want to know if we must deduct TDS on these purchases. I would like to understand which provision governs this, what it entitles me to, and how long I have before the remedy lapses. I also want to know whether I need a lawyer for this or can do it myself.

MyVakeel Legal Desk · Accepted Answer

In India, the answer to "When must a buyer deduct TDS on purchase of goods under Section 194Q" turns on Income-tax Act, 1961, Section 194Q, Income-tax Act, 1961, Section 206C(1H) and Income-tax Act, 1961, Section 206AB. The points below set out the position and then what to do about it, in the order it should be done.

Section 194Q requires a buyer whose total turnover exceeded Rs. 10 crore in the preceding financial year to deduct TDS at 0.1% on purchase of goods from a resident seller where the value or aggregate value of purchases from that seller exceeds Rs. 50 lakh in the financial year, deducted on the amount exceeding this threshold.

Where both Section 194Q, applicable to the buyer, and Section 206C(1H), applicable to the seller for tax collection at source on similar transactions, could apply to the same transaction, the CBDT has clarified that TDS under Section 194Q takes precedence and the seller need not additionally collect TCS.

TDS under this section must be deducted at the time of credit to the seller's account or payment, whichever is earlier, and applies on the entire purchase value once the Rs. 50 lakh threshold in aggregate is crossed for that seller during the year, not merely on the excess over prior thresholds in isolation for each invoice.

Non-compliance can lead to disallowance of the corresponding purchase expense under Section 40(a)(ia) in computing business income and interest and penalty for failure to deduct tax at source.

What to do next: 1) Track aggregate purchases from each resident seller during the financial year; 2) Deduct TDS at 0.1% once the Rs. 50 lakh threshold is crossed for a seller; 3) Confirm with the seller whether TCS under Section 206C(1H) has been avoided to prevent double compliance; 4) Deposit TDS and file TDS returns within the prescribed timelines.

If you are unsure whether your facts fall inside Income-tax Act, 1961, Section 194Q, that is worth checking with an advocate before you commit to a route, because switching later costs time. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in tax law.