Section 194Q requires certain buyers to deduct TDS on purchases of goods from resident sellers once thresholds are crossed. While the concept is simple, implementation becomes complex due to vendor wise threshold tracking, ERP configuration, and overlap with TCS under Section 206C 1H.
A well designed 194Q process reduces the risk of double collection, interest exposure, and vendor disputes.
What Section 194Q Covers
Section 194Q applies when:
- The buyer is responsible for paying a resident seller for purchase of goods
- The buyer turnover in the preceding financial year exceeds the specified threshold
- The value of purchases from a seller exceeds the transaction threshold during the year
TDS is deducted on the amount exceeding the threshold.
Applicability Conditions Practical View
Buyer turnover threshold
194Q applies only if the buyer turnover or gross receipts from business exceed 10 crore in the preceding financial year.
Practical control: Confirm turnover from audited financials and document the basis.
Purchase threshold per seller
TDS applies when purchases from a seller exceed 50 lakh in a financial year.
Practical control: Track vendor wise cumulative purchases from 1 April.
Resident seller condition
194Q applies only for purchases from resident sellers.
Practical control: Maintain vendor residency status and PAN validation.
Rate and Higher Deduction Scenarios
- Standard rate is 0.1 percent
- Higher rate applies if PAN is not available under 206AA
- Higher rate may apply for specified persons under 206AB
Practical control: Run periodic 206AB checks and maintain evidence.
Overlap with TCS under Section 206C 1H
This is the most common confusion area.
A practical approach:
- If 194Q applies to the buyer and TDS is deducted, seller should not collect TCS under 206C 1H on the same transaction
- If 194Q does not apply to the buyer, seller may collect TCS if their conditions are met
Practical control: Communicate with key vendors and obtain confirmations to avoid double collection.
Computation and GST Component
A practical computation approach:
- Apply threshold vendor wise
- Deduct on the amount exceeding 50 lakh
- Consider whether to compute on invoice value inclusive of GST based on internal policy and prevailing interpretations
Practical control: Maintain a consistent approach and document it in a policy note.
Timing of Deduction
TDS is deducted at the time of credit or payment whichever is earlier.
Practical control: Configure ERP to trigger TDS at booking or payment as per process.
Accounting and Reporting
Accounting entry
A typical entry at the time of booking:
- Debit Purchases or Expense
- Credit Vendor
- Credit TDS payable under 194Q
Deposit and return
- Deposit via challan 281 within due dates
- Report in Form 26Q with correct section code
- Issue Form 16A to vendors
Common Mistakes
- Missing turnover threshold check and applying 194Q incorrectly
- Not tracking vendor wise threshold leading to late deduction
- Deducting on advances without proper mapping
- Double deduction along with TCS
- Wrong inclusion or exclusion of GST inconsistently
- Incorrect section code in return leading to credit mismatch
Practical 194Q Compliance Checklist
1 Confirm buyer turnover threshold for preceding year 2 Identify resident vendors covered and validate PAN 3 Configure ERP and vendor master for 194Q 4 Track vendor wise purchases from 1 April and monitor threshold 5 Deduct TDS at credit or payment whichever earlier 6 Deposit TDS and maintain challan register 7 File quarterly return Form 26Q and reconcile challans 8 Issue Form 16A and resolve mismatches 9 Maintain vendor communication to prevent TCS overlap
How Perfect Accounting Can Help
Perfect Accounting and Shared Services supports 194Q implementation and ongoing compliance:
- Applicability assessment and policy note
- ERP and vendor master configuration guidance
- Monthly threshold tracking and deduction support
- Quarterly return filing and reconciliations
- Notice handling and vendor dispute resolution