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 have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

When must a buyer deduct TDS on purchase of goods under Section 194Q is governed in India primarily by Income-tax Act, 1961, Section 194Q, Income-tax Act, 1961, Section 206C(1H) and Income-tax Act, 1961, Section 206AB. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

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 the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Income-tax Act, 1961, Section 194Q carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. 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 this practice area.