Who Actually Falls Under This Rule
The obligation is straightforward: a buyer must deduct tax at source once its purchases from a resident supplier cross ₹50 lakh in a financial year but only if the buyer’s own turnover in the immediately preceding year exceeded ₹10 crore. Both conditions must be met a buyer under the ₹10 crore threshold has no obligation here, regardless of purchase volume. This rule, long known as Section 194Q, hasn’t changed in substance under the Income-tax Act, 2025. What has changed is its address within the law. Effective 1 April 2026, nearly all non-salary TDS provisions 194A, 194C, 194H, 194J, 194Q and dozens more have been folded into a single umbrella provision, Section 393, “Tax deduction at source,” with each old section now a row in a consolidated table. TDS on purchase of goods lives on as Section 393(1), Table Serial No. 8(ii). The other amendment adopted apart from the one above is that under Section 206C(1H) concerning the "Tax Collected at Source on behalf of the Seller" as amended by the Finance Act, 2025 as from 1st April 2025. Thus, only one mechanism of collecting tax, which is TDS, is left, as provided under Section 393(1).
Working Through the Numbers
In like manner, this also remains fixed at 0.1%, but it would be applied to the excess amount beyond ₹50 lakhs. To explain with the help of an example, let us suppose that an individual earns ₹40 crores annually in the previous year and purchases items valued at ₹80 lakhs from one resident dealer in the current year. The tax payable on such entire transaction will be levied on ₹30 lakhs (₹80 lakhs - ₹50 lakhs) = ₹3,000. If the individual does not have PAN, then the rate will increase to 5% on ₹30 lakhs = ₹1.5 lakhs. Where GST is shown separately on the invoice, the deduction base excludes it on a ₹70 lakh purchase with ₹10.68 lakh GST itemised separately, TDS is computed on ₹59.32 lakh less the ₹50 lakh threshold, i.e. on ₹9.32 lakh. If GST isn’t itemised, the full invoice value forms the base. Timing matters as much as amount TDS triggers at payment or credit, whichever is earlier, so an advance of ₹55 lakh paid before any invoice is raised already crosses the threshold and must be deducted on the ₹5 lakh excess at the time of payment. Capital goods carry no exemption a machinery purchase above the threshold is deducted exactly like a revenue-account purchase.
What Changes on the Compliance Calendar
The rate and threshold are frozen, but three dates matter for planning. First, 1 April 2025 is when the competing Section 206C(1H) TCS obligation disappeared sellers no longer need to track it. Second, 1 April 2026 is when the Income-tax Act, 2025 takes effect and Section 194Q formally becomes Section 393(1) until then, both citations remain valid but return software and contracts should be ready before that date, not scrambling on it. Third, the underlying monthly and quarterly compliance rhythm is unchanged TDS deducted in a month is deposited by the 7th of the following month (30 April for March), reported through the quarterly Form 26Q and followed by Form 16A issued to the seller within the prescribed window after each quarter’s return. Form 26QB, used for property purchases under the old Section 194-IA, has no role here finance teams that have been misrouting goods-purchase TDS through 26QB need to redirect that filing to 26Q before the next return cycle.
Steps for Buyers and Sellers
Buyer Action Steps
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Verify vendor PAN prior to onboarding.
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Track cumulative purchase value per vendor in real time rather than waiting for year-end.
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Apply the deduction to advances at the time they are paid.
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Ensure GST is itemized separately on every vendor invoice so the deduction base is calculated correctly.
Seller Action Steps
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Confirm the buyer is deducting tax at the correct rate.
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Verify that the deduction is credited against the correct PAN to prevent upstream short-deduction reconciliation issues.
Mutual Setup & Contractual Steps
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Update contracts, purchase orders and ERP tax-mapping tables to cite Section 393(1) [Table Sl. No. 8(ii)].
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Retain the legacy 194Q reference during the transition period to prevent citation gaps
Internal Controls and Contract Clauses Worth Building In
Internal Controls
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Implement a running, vendor-wise purchase ledger inside the ERP that automatically flags when purchases cross the ₹50 lakh threshold.
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Establish a PAN-verification gate during vendor onboarding and refresh it annually to avoid the punitive 5 percent default rate.
Contract Clauses
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Include a withholding-and-reimbursement clause specifying that payments are inclusive of applicable TDS, Form 16A will be issued statutorily, and any shortfalls will be adjusted against the next payment cycle.
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Add an explicit line on purchase orders above the threshold stating that TDS under Section 393(1) [formerly 194Q] applies to the portion exceeding ₹50 lakh.
Where This Sits for Advisory Clients
For manufacturing, trading, and services businesses running high transaction volumes across many vendors, this is exactly the kind of change that looks minor on paper a rate and threshold that haven’t moved but creates real exposure if system mapping and contract language lag the renumbering. That gap between a documentation exercise and an actual compliance failure is where SKMC Global Income Tax Compliances practice typically gets engaged mapping existing 194Q references across ERPs and vendor contracts to Section 393(1), building the threshold-tracking control into procurement workflows, and confirming the first Form 26Q filing under the new structure picks up the correct section code before it’s due.
Conclusion
Nothing about the ₹50 lakh threshold, the ₹10 crore buyer-turnover condition or the 0.1 percent rate has moved under the Income-tax Act, 2025. What has moved is the section’s name, its home within a consolidated TDS table, and the disappearance of the parallel TCS obligation that used to complicate the same transaction. Handled early, this is a citation and system-mapping exercise. Handled late, it’s the kind of gap that only surfaces when an assessment goes looking for it.
FREQUENTLY ASKED QUESTIONS
No. Where GST is shown separately on the invoice, TDS under Section 393(1) is computed only on the value excluding GST. If GST isn’t itemised separately, the deduction applies to the full invoice amount, tax included.
This is now moot Section 206C(1H) was withdrawn effective 1 April 2025, so there’s no overlap left to resolve. TDS under Section 393(1) is the sole mechanism for this category of transaction today.
Non-deduction attracts interest of 1 percent per month (1.5 percent if deducted but not deposited), a 30 percent disallowance of the relevant expenditure and a separate penalty equal to the tax not deducted regardless of intent.
Capital goods from a resident seller are covered with no exclusion for capitalised assets. Imports from a non-resident seller fall outside this provision entirely, since it applies only to resident sellers.
Section 194Q has been renamed and consolidated into Section 393(1), Table Serial No. 8(ii), effective 1 April 2026. It’s no longer a standalone named section but one entry within Section 393’s unified TDS table the rate and threshold are unchanged.
TDS applies at the time of payment or credit, whichever is earlier, so an advance trigger the deduction the moment cumulative payments to that seller cross ?50 lakh for the year even before any invoice is raised.