Section 194Q has become one of the most relevant provisions for traders, distributors, wholesalers, and other businesses that regularly purchase goods from resident suppliers. In practice, this section creates a TDS obligation on purchase of goods once the prescribed turnover and purchase threshold conditions are met.

For FY 2025-26, the core rules remain the same:

This article is a practical section 194Q TDS on purchase of goods calculation guide for businesses that need to compute, deduct, and deposit TDS correctly.

Section 194Q applies where a buyer is responsible for making payment to a resident seller for purchase of goods. The law places the responsibility on the buyer, not the seller, once the basic conditions are satisfied.

To trigger Section 194Q, the following conditions must be checked:

A very important practical point is that the threshold of ₹50 lakh is seller-wise. That means you must track purchases separately for each vendor.

For example, if you buy goods from Seller A and Seller B, the ₹50 lakh limit is checked independently for each seller.

Rate of TDS

The standard rate under Section 194Q is:

If the seller does not provide PAN, the applicable rate can become higher under the general provisions of the Act. In practice, businesses should ensure PAN is captured in vendor master records to avoid excessive deduction and reconciliation issues.

When does deduction start?

TDS is not deducted on the entire purchase value from the beginning of the year. It starts only after cumulative purchases from that seller cross ₹50 lakh during the financial year.

This makes the calculation highly dependent on correct month-wise or invoice-wise tracking.

GST and invoice value

A practical issue for the section 194Q TDS on purchase of goods calculation is whether TDS should be deducted on the amount including GST.

The safe approach is:

Businesses should align their accounting treatment with their invoice format and internal policy, and maintain consistency.

Section 194Q vs 206C(1H)

If the seller is liable to collect TCS under Section 206C(1H), and the buyer is also liable under Section 194Q, then Section 194Q overrides 206C(1H). In such cases, the buyer deducts TDS and the seller generally should not collect TCS on the same transaction.

Step-by-step guidance

Here is the most practical way to compute TDS under Section 194Q for FY 2025-26.

Step 1: Check whether the buyer is covered

Confirm whether the buyer’s turnover in the preceding financial year exceeded ₹10 crore.

This check is based on business turnover, sales, or gross receipts, as applicable.

Step 2: Identify resident sellers only

Section 194Q applies only to purchases from resident sellers.

This distinction is critical for traders importing goods or buying from foreign suppliers.

Step 3: Track purchases seller-wise

For each resident seller, maintain a running total of purchases made during FY 2025-26.

Only after that threshold is crossed does TDS become payable.

Step 4: Identify the taxable portion

Once cumulative purchases from a seller exceed ₹50 lakh, deduct TDS only on the amount in excess of ₹50 lakh.

Formula:

If you prefer invoice-wise treatment, TDS is deducted on the amount of the invoice that causes or exceeds the threshold, and on all subsequent purchases from that seller.

Step 5: Apply GST treatment correctly

If GST is separately mentioned in the invoice, exclude GST while computing the TDS base, subject to your accounting policy and supported documentation.

A practical formula can be:

Step 6: Deduct TDS at the time of credit or payment

Deduct TDS at the earlier of:

This means even advance payments can trigger deduction if the amount becomes payable and the conditions are met.

Step 7: Deposit and report TDS

After deduction:

Timely compliance is important because buyers often face vendor follow-up and reconciliation issues if TDS is not reflected properly.

Examples

Example 1: Basic threshold calculation

A trader with turnover exceeding ₹10 crore in FY 2024-25 purchases goods from Seller A as follows in FY 2025-26:

Total purchases from Seller A = ₹74 lakh

Threshold exemption = ₹50 lakh

Taxable amount = ₹24 lakh

TDS at 0.1% = ₹2,400

So, the buyer must deduct ₹2,400 under Section 194Q.

Example 2: Invoice that crosses the threshold

Purchases from Seller B during FY 2025-26 are:

The threshold is crossed during the 6th invoice.

TDS applies only on the portion exceeding ₹50 lakh:

Subsequent invoices from Seller B will also be subject to TDS on the full taxable portion.

Example 3: GST shown separately

Assume an invoice value of ₹10,00,000 plus GST of ₹1,80,000.

If GST is shown separately, TDS base is generally taken as:

If this invoice falls in the taxable portion after the ₹50 lakh threshold, then:

Example 4: Purchases from multiple sellers

A distributor purchases goods from:

TDS applicability is checked seller-wise.

Therefore:

Common mistakes

Businesses often make avoidable errors while implementing Section 194Q. The most common mistakes are:

A strong internal control system is essential, especially for traders and distributors who deal with high volumes of purchase invoices.

Practical calculation checklist for FY 2025-26

Before deducting TDS under Section 194Q, use this checklist:

Conclusion

Section 194Q is a straightforward provision in principle, but the calculation and vendor-level tracking require discipline. For traders and distributors, the real compliance challenge is not the rate; it is the correct identification of the threshold, the seller-wise accumulation of purchases, and the timing of deduction.

For FY 2025-26, remember the key numbers:

If you maintain a proper vendor tracker and invoice-wise purchase register, the section 194Q TDS on purchase of goods calculation becomes manageable and audit-friendly. For businesses with large volumes, a monthly review is strongly advisable to avoid short deduction, interest, and vendor disputes.