The provisions relating to TDS on purchase of goods have been restructured under the Income-tax Act, 2025. The earlier Section 194Q of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 8(ii)], effective from 1st April, 2026.
This restructuring retains the requirement to deduct tax at source on high-value purchases, ensuring proper tracking of transactions and strengthening compliance.
Quick Reference – Section Mapping & Reporting
- New Section: Section 393(1)
- Table Reference: Sl. No. 8(ii)
- Nature: Purchase of goods
- Old Section: 194Q
- Return Form: 26Q
- Rate: 0.1%
- Threshold: ₹50 lakh
When is TDS required to be deducted?
TDS is required to be deducted when the aggregate value of goods purchased from a resident seller exceeds ₹50 lakh in a financial year. The deduction is applicable only on the amount exceeding this threshold, and not on the entire purchase value.
Who is required to deduct TDS?
The responsibility to deduct tax lies with the buyer whose turnover from business exceeds ₹10 crore in the immediately preceding financial year. This ensures that only specified high-value transactions are covered.
When should TDS be deducted?
Tax must be deducted at the time of credit of the amount to the account of the seller or at the time of payment, whichever is earlier. This also includes advance payments, ensuring that tax deduction is not deferred.
What is the applicable rate of TDS?
TDS is to be deducted at the rate of 0.1% on the amount exceeding ₹50 lakh. Where the seller does not furnish PAN, the rate increases to 5%, making PAN compliance critical.
Is TDS applicable on GST component?
TDS is required to be deducted on the basic value of goods, excluding GST, provided that GST is shown separately in the invoice.
What happens when both TDS and TCS provisions apply?
In cases where both Section 393(1) [Table: Sl. No. 8(ii)] and the provisions relating to TCS on sale of goods are applicable on the same transaction, only TDS under Section 393(1) [Table: Sl. No. 8(ii)] shall be deducted, and TCS shall not be collected.
What are the consequences of non-deduction?
If the buyer fails to deduct TDS, 30% of the purchase value may be disallowed as an expense while computing taxable income. This results in a higher tax liability and acts as a strong compliance measure.
How does this work in practice?
Where a buyer purchases goods worth ₹1 crore from a seller during a financial year, TDS shall be deducted only on ₹50 lakh (being the amount exceeding the threshold). At 0.1%, the TDS amount will be ₹5,000, which must be deducted and deposited accordingly.
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