{"id":56323,"date":"2025-05-14T16:33:16","date_gmt":"2025-05-14T11:03:16","guid":{"rendered":"https:\/\/www.equentis.com\/blog\/?p=56323"},"modified":"2025-07-25T17:34:19","modified_gmt":"2025-07-25T12:04:19","slug":"section-194q-of-the-income-tax-act","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/section-194q-of-the-income-tax-act\/","title":{"rendered":"Section 194Q of the Income Tax Act: A Comprehensive Guide"},"content":{"rendered":"<div id=\"bsf_rt_marker\"><\/div>\n<h2 class=\"wp-block-heading has-large-font-size\">Understanding Section 194Q<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">What is Section 194Q?<\/h3>\n\n\n\n<p>When discussing <a href=\"https:\/\/www.equentis.com\/blog\/basics-of-income-tax-for-beginners\/\">TDS<\/a>, it is usually seen as a concept related to salary and perquisites deduction. However, the applicability and the rule also extend to a company&#8217;s purchase of goods in a certain context under Sec 194Q.&nbsp;<\/p>\n\n\n\n<p>Section 194Q of the <a href=\"https:\/\/www.equentis.com\/blog\/income-tax-concepts-the-ultimate-guide\/\">Income Tax<\/a> Act was introduced through the Finance Act 2021 to regulate high-value transactions. It requires buyers to deduct TDS (Tax Deducted at Source) on purchases of goods if their turnover or gross receipts exceed \u20b910 crore in the previous financial year. The provision applies to purchase amounts in excess of \u20b950 lakh in a financial year.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Purpose and Applicability of Section 194Q<\/h3>\n\n\n\n<p>The purpose of Section 194Q is to track and bring high-value purchase transactions under the tax net. The provision applies to:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Businesses with turnover\/gross receipts exceeding \u20b910 crore in the previous financial year, regardless of whether they opt for the new or <a href=\"https:\/\/www.equentis.com\/blog\/old-tax-regime-slabs\/\">old tax regime<\/a>.<\/li>\n\n\n\n<li>Transactions where the aggregate value of goods a seller purchases exceeds \u20b950 lakh in a financial year.<\/li>\n<\/ul>\n\n\n\n<p>The provision also broadens the scope of TDS collection, expands the tax base, and ensures tax compliance on purchasing goods. It aims to address the tax gap by compelling buyers to report transactions and maintain proper records. This helps curb tax evasion by making businesses more transparent in their dealings.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-large-font-size\">Applicability of TDS Under Section 194Q<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Eligibility Criteria<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">Specific Examples of Who Deducts TDS<\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Large Corporations and Businesses:<\/strong><\/li>\n<\/ul>\n\n\n\n<p>Companies engaged in wholesale or retail business, such as FMCG distributors or electronic goods retailers, must deduct TDS under Section 194Q on purchases exceeding \u20b950 lakh<strong>.<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Government Agencies:<\/strong><\/li>\n<\/ul>\n\n\n\n<p><a href=\"https:\/\/www.equentis.com\/blog\/public-sector-undertakings-psus-in-india-an-overview\/\">Public sector undertakings<\/a> or government entities making bulk purchases must also comply with the TDS deduction in this section<strong>.<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Importers and Exporters:<\/strong><\/li>\n<\/ul>\n\n\n\n<p>While Section 194Q does not apply to imports, businesses involved in domestic sales exceeding \u20b950 lakh to a single seller must deduct TDS.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Businesses Falling Under Section 194Q<\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Businesses like large retailers, wholesalers, and manufacturers whose procurement exceeds \u20b950 lakh will need to comply with Section 194Q.<\/li>\n\n\n\n<li>Companies involved in the import\/export of goods will also be subject to this provision.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Exceptions to TDS Deduction<\/h3>\n\n\n\n<p>TDS under Section 194Q is not applicable in the following situations:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Import of Goods:<\/strong><\/li>\n<\/ol>\n\n\n\n<p>Purchases of goods from non-resident sellers are not subject to TDS under Section 194Q.<\/p>\n\n\n\n<ol start=\"2\" class=\"wp-block-list\">\n<li><strong>Transactions Covered by Other Sections<\/strong>:<\/li>\n<\/ol>\n\n\n\n<p>If TDS is already deducted under another section, such as Section 194O (for e-commerce transactions), then Section 194Q will not apply.<\/p>\n\n\n\n<ol start=\"3\" class=\"wp-block-list\">\n<li><strong>Transactions Covered Under Section 206C(1H)<\/strong>:<\/li>\n<\/ol>\n\n\n\n<p>Before FY 2025-26, if TDS under Section 194Q and TCS under Section 206C(1H) applied, TDS under Section 194Q would take priority. However, from FY 2025-26, TCS under Section 206C(1H) no longer applies to goods purchases. This change removes the overlap, so only TDS under Section 194Q will apply now.<\/p>\n\n\n\n<p>This update will make it easier for businesses and taxpayers during <a href=\"https:\/\/www.equentis.com\/blog\/how-to-file-itr-online\/\">ITR<\/a> filing, as they only need to focus on the TDS deducted under Section 194Q. Nevertheless, while filing your ITR, ensure the correct TDS details are included. If you&#8217;re unfamiliar with<a href=\"https:\/\/www.equentis.com\/blog\/how-to-file-itr-online\/\"> how to file an ITR online<\/a>, taking time to verify the information can help avoid issues.<\/p>\n\n\n\n<ol start=\"4\" class=\"wp-block-list\">\n<li><strong>Personal Purchases<\/strong>:<\/li>\n<\/ol>\n\n\n\n<p>TDS under Section 194Q does not apply to personal purchases or transactions unrelated to business or profession.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Threshold Limit Calculation<\/h3>\n\n\n\n<p>The deduction threshold is \u20b950 lakh. It means that TDS is applicable only when the total purchases from a seller exceed \u20b950 lakh in a financial year. Purchases below this threshold are exempt from TDS under Section 194Q.<br><\/p>\n\n\n\n<h2 class=\"wp-block-heading has-large-font-size\">TDS Rate and Calculation<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">TDS Rates<\/h3>\n\n\n\n<p>Under Section 194Q, the TDS rate is set at <strong>0.1%<\/strong> of the purchase value exceeding \u20b950 lakh. The rate may differ depending on the nature of the seller (for example, if the seller is a resident or non-resident).<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>For a resident seller<\/strong>: 0.1% on purchases above \u20b950 lakh.<\/li>\n\n\n\n<li><strong>For a non-resident seller<\/strong>, the applicable TDS rate may differ according to other relevant sections (section 195 of the Income Tax Act).<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Calculation of TDS with Examples<\/h3>\n\n\n\n<p>For instance, say a company purchases goods worth \u20b960 lakh from a seller in a year, TDS will be deducted on the \u20b910 lakh exceeding the \u20b950 lakh threshold. So, the deductible TDS will be 0.1% of \u20b910 lakh, which is \u20b910,000.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-large-font-size\">Time of TDS Deduction and Deposit<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Due Dates for TDS Deposit<\/h3>\n\n\n\n<p>The TDS deducted under Section 194Q must be deposited by the 7th of the following month in which the deduction was made. For example, if TDS is deducted in April, it must be deposited by 7th May.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">TDS Return: Form 26Q<\/h3>\n\n\n\n<p>The TDS deducted under Section 194Q is reported in Form 26Q. This is a quarterly return and must be filed by the 31st of the month following the end of each quarter. So the filing for Q1 (April to June) will be done by 31st July, and so on.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-large-font-size\">Impact of GST on Section 194Q<\/h2>\n\n\n\n<p>GST has specific implications on how TDS under Section 194Q is calculated. When determining whether the \u20b950 lakh threshold is met, the turnover or gross receipts should be calculated excluding the GST component. This means only the value of goods is considered for the threshold limit.&nbsp;<\/p>\n\n\n\n<p>So, TDS under Section 194Q will be deducted at 0.1% on the purchase value, excluding GST. For instance, if a buyer purchases goods worth \u20b960 lakh, where the GST component is \u20b910 lakh, the calculation will be as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Purchase Value: \u20b960 lakh<\/li>\n\n\n\n<li>GST Component: \u20b910 lakh<\/li>\n\n\n\n<li>Value for TDS Calculation: \u20b950 lakh (\u20b960 lakh &#8211; \u20b910 lakh)<\/li>\n<\/ul>\n\n\n\n<p>Since the purchase value after excluding GST is \u20b950 lakh, no TDS will be deducted as the threshold has not been exceeded. Had it exceeded \u20b950 lakh, TDS would apply on the excess amount.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-large-font-size\">Penalties and Consequences of Non-Compliance<\/h2>\n\n\n\n<p>Failure to deduct TDS under Section 194Q or deposit it with the government can lead to:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Under Section 234E, a late filing fee of \u20b9200 per day is levied for delayed TDS return filing, capped at the TDS\/TCS amount deductible or collectible.<\/li>\n\n\n\n<li>Failure to file or inaccurate filing of TDS returns attracts a penalty under Section 271H, ranging from \u20b910,000 to \u20b91,00,000.<\/li>\n\n\n\n<li>If TDS is not deducted, interest at 1% per month is charged on the unpaid amount until the deduction is made.<\/li>\n\n\n\n<li>If TDS is deducted but not deposited, interest at 1.5% per month is charged on the unpaid amount until it is deposited.<\/li>\n\n\n\n<li>The deductor is treated as an assessee-in-default if TDS is not deducted or deposited as required.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading has-large-font-size\">Exemptions and Important Considerations<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Non-applicability for payments less than \u20b950 lakh<\/strong>: No TDS deduction is required on purchases below \u20b950 lakh.<\/li>\n\n\n\n<li><strong>Harmonization with other sections<\/strong>: Businesses must ensure they are not double-taxed by considering provisions of other relevant sections, like 195 (for non-resident transactions).<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading has-large-font-size\">Conclusion<\/h2>\n\n\n\n<p>Section 194Q significantly impacts businesses involved in high-value transactions, making it a crucial compliance requirement. While traditionally seen as a tax regulation for businesses, it also draws the attention of investors and <a href=\"https:\/\/www.equentis.com\/researchandranking\">shares advisory services<\/a>, as non-compliance can affect a company&#8217;s financials and tax liability.Additionally, understanding the distinction between <a href=\"https:\/\/www.equentis.com\/blog\/what-is-the-difference-between-tcs-and-tds\/\">TCS vs TDS <\/a>is important in Section 194Q, especially with the removal of TCS (<a href=\"https:\/\/www.equentis.com\/blog\/tcs-tax-collected-at-source\/\">Tax Collected at Source<\/a>) under Section 206C(1H) for goods purchases, streamlining the process for businesses.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-large-font-size\">FAQs on Section 194Q<\/h2>\n\n\n<div class=\"saswp-faq-block-section\"><ol style=\"list-style-type:none\"><li style=\"list-style-type: none\"><h3 class=\"\">What is the limit of \u20b950 lakh for 194Q?<\/h3><p class=\"saswp-faq-answer-text\">The \u20b950 lakh limit refers to the total purchases from a seller in a financial year. TDS under Section 194Q is applicable when the purchase value exceeds \u20b950 lakh.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">What is the last date for depositing TDS?<\/h3><p class=\"saswp-faq-answer-text\">The last date for depositing TDS is the <strong>7th of the month<\/strong> following the month in which TDS was deducted.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Which cases do not require the application of Section 194Q?<\/h3><p class=\"saswp-faq-answer-text\">Section 194Q does not apply to purchasing goods for personal use, imports, or transactions with non-resident sellers.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">What are the consequences of not deducting or depositing TDS?<\/h3><p class=\"saswp-faq-answer-text\">Failure to deduct or deposit TDS can lead to penalties, interest charges, and scrutiny by tax authorities.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Is Section 194Q applicable in the case of the import of goods?<\/h3><p class=\"saswp-faq-answer-text\">No, Section 194Q does not apply to imports of goods.<\/p><\/ul><\/div>","protected":false},"excerpt":{"rendered":"<p>When discussing TDS, it is usually seen as a concept related to salary and perquisites deduction. However, the applicability and the rule also extend to a company&#8217;s purchase of goods in a certain context under Sec 194Q.\u00a0<\/p>\n","protected":false},"author":24,"featured_media":56324,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[1560],"tags":[],"class_list":["post-56323","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-personal-finance-taxonomy"],"_links":{"self":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts\/56323","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/users\/24"}],"replies":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/comments?post=56323"}],"version-history":[{"count":2,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts\/56323\/revisions"}],"predecessor-version":[{"id":58194,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts\/56323\/revisions\/58194"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/media\/56324"}],"wp:attachment":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/media?parent=56323"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/categories?post=56323"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/tags?post=56323"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}