For FY 2026-27, the rule is simple: TDS under Section 194Q can apply to your large purchases of goods, but TCS under Section 206C(1H) no longer applies to sales made on or after 1 October 2023. If you read older articles that ask you to choose between 194Q and 206C(1H), they are out of date. This guide explains what changed, who still has to deduct tax, and how to run a clean routine.
What 194Q and 206C(1H) were meant to do
Both provisions were introduced to track high-value trade in goods. Section 194Q put the duty on the buyer to deduct tax at source when paying a seller. Section 206C(1H) put the duty on the seller to collect tax from the buyer. The two could not both apply to the same transaction: if the buyer was required to deduct under 194Q, the seller did not collect under 206C(1H).
That is why the topic "194Q vs 206C(1H)" was popular. Many businesses spent time working out who should act. Today the question has a much shorter answer.
The current position for FY 2026-27
- Section 206C(1H) has been omitted from the Income-tax Act with effect from 1 October 2023. A seller does not collect this TCS on receipts after that date.
- Section 194Q continues. The buyer who meets the conditions must deduct TDS on purchases of goods from a resident seller.
- For purchases and receipts before 1 October 2023, the old rules and any pending TCS credit or return corrections still matter if you are cleaning up earlier years.
Please confirm the latest text of the law and any CBDT circular on the Income Tax Department website, as provisions and section numbers can be renumbered or amended over time.
Who must deduct TDS under Section 194Q
As a buyer, you generally need to deduct TDS under 194Q when all of these are true:
- You are the buyer of goods (not services) from a resident seller.
- Your total sales, gross receipts or turnover from your business exceeded ₹10 crore in the immediately preceding financial year.
- Your purchases from that one seller in the financial year go beyond ₹50 lakh.
The tax rate is 0.1%, and it applies only to the amount above ₹50 lakh with that seller. Check the rate that applies if the seller has not provided a PAN, because a higher rate can apply.
A worked example
Suppose a trading company with a prior-year turnover of ₹14 crore buys goods from one supplier during the year. By October, purchases from that supplier reach ₹58 lakh. Only the ₹8 lakh above the ₹50 lakh threshold attracts TDS at 0.1%, which is ₹800. Every further purchase from that supplier in the same year is also subject to 0.1%.
Points that often cause mistakes
- Threshold is per seller, per year. Purchases from different sellers are not added together.
- Time of deduction. Deduct when the amount is credited to the seller's account or when payment is made, whichever is earlier.
- GST in the invoice. If GST is shown separately in the invoice, CBDT guidance allows TDS to be calculated on the value excluding GST. Keep the invoice format consistent so this is clear.
- Overlap with other TDS or TCS. If tax is already deductible or collectible on the same purchase under another provision, 194Q is generally not applied on top. Check the exclusions with your CA.
- Turnover test. The ₹10 crore test uses the previous year's figures, so it is worth re-checking each April.
A simple monthly routine for buyers
- List your sellers. At the start of the year, prepare a sheet of regular suppliers with PAN and running purchase totals.
- Track cumulative purchases. Update the total after every bill posted, so you know the invoice in which the ₹50 lakh limit is crossed.
- Deduct and record. Make a separate TDS payable entry for each deduction, with the seller name and invoice number.
- Deposit on time. TDS is generally deposited by the 7th of the following month. For March deductions the date is different, so check the current deadline.
- File the quarterly return. Report 194Q deductions in the quarterly TDS return for payments to residents (Form 26Q) and issue the TDS certificate (Form 16A) to the seller.
- Reconcile. Match your deductions with the credit shown in the seller's Form 26AS, as mismatches usually trace back to a wrong PAN or a wrong section.
What happens if you miss it
If you fail to deduct, or deduct and deposit late, interest under Section 201(1A) can apply, and a late return can attract a fee under Section 234E. In some cases, part of the expense may also be disallowed in your income tax computation. Our worked example on late TDS interest and the 234E fee shows how the numbers add up.
If you are a seller
You do not need to collect 206C(1H) TCS on sales made on or after 1 October 2023. Your buyer may deduct 194Q TDS from your payment instead, so it is sensible to give buyers your correct PAN and to check your TDS credit in Form 26AS and AIS before filing your ITR. For a broader checklist, see our TDS compliance basics for growing companies.
Key takeaways
- For FY 2026-27, there is no 194Q-versus-206C(1H) choice, because 206C(1H) was omitted from 1 October 2023.
- Section 194Q applies to buyers with prior-year turnover above ₹10 crore who buy goods from a resident seller beyond ₹50 lakh in the year.
- TDS is 0.1% on the amount above ₹50 lakh, counted seller by seller.
- Track cumulative purchases, deposit by the due date and file Form 26Q.
- Confirm the current rules, exceptions and due dates with your chartered accountant before acting.
This article is general guidance and not tax advice. Rates, thresholds and due dates can change by amendment or notification, so review them with a qualified professional for your own situation.
