TDS on Purchase of Goods 2026: Section 393 vs Old 194Q, ₹50 Lakh Threshold & Checklist
Last reviewed: 11 September 2026.
Answer first: For Tax Year 2026-27, the old section 194Q purchase-of-goods rule is carried into section 393(1), Table Sl. No. 8(ii) of the Income Tax Act, 2025. A qualifying buyer deducts TDS at 0.1% on the purchase amount exceeding ₹50 lakh from a resident seller. For this purpose, section 402(6) treats a buyer as a person whose business turnover exceeded ₹10 crore in the immediately preceding tax year. The old sale-of-goods TCS under section 206C(1H) has not applied since 1 April 2025, and old section 206AB was also omitted from that date.
| 2026 compliance point | Current position |
|---|---|
| Current law | Income Tax Act, 2025 — section 393(1), Table 8(ii) |
| Old familiar provision | Section 194Q, Income-tax Act, 1961 |
| Buyer turnover test | More than ₹10 crore business turnover in immediately preceding tax year |
| Seller | Resident seller |
| Purchase threshold | ₹50 lakh per seller in the tax year |
| TDS base | Amount exceeding ₹50 lakh |
| Rate | 0.1% |
| Timing | Credit or payment, whichever is earlier, subject to current-law rules |
Old section 194Q vs new section 393
The compliance concept continues, but the section reference has changed from the 1961 Act. Under the Income Tax Act, 2025, purchase-of-goods withholding appears at section 393(1), Table Sl. No. 8(ii). Section 402(6) separately defines the buyer for this purpose. Finance and ERP teams should therefore preserve the commercial logic of their old 194Q controls while updating statutory references, return codes and documentation for the new Act.
| Issue | Old law | TY 2026-27 |
|---|---|---|
| Purchase-of-goods TDS | Section 194Q | Section 393(1), Table 8(ii) |
| Buyer turnover condition | More than ₹10 crore in preceding FY | More than ₹10 crore business turnover in preceding tax year under section 402(6) |
| Vendor threshold | ₹50 lakh | ₹50 lakh |
| Rate | 0.1% | 0.1% |
| Sale-of-goods TCS overlap | Earlier section 206C(1H) interaction | 206C(1H) has been inapplicable since 1 April 2025 |
Who is a buyer for this TDS rule?
Section 402(6) provides the current buyer test. For purchase of goods under section 393 Table 8(ii), the buyer is a person whose total sales, gross receipts or turnover from the business carried on by that person exceeded ₹10 crore during the tax year immediately preceding the tax year in which the purchase takes place.
Example: If a company had business turnover of ₹14 crore in TY 2025-26, it enters TY 2026-27 as a qualifying buyer. If its purchases from a resident vendor cross ₹50 lakh during TY 2026-27, the section 393 purchase-of-goods withholding rule must be tested.
How the ₹50 lakh threshold works
The current provision applies to the sum exceeding ₹50 lakh. This requires vendor-wise cumulative monitoring throughout the tax year. The control should normally be PAN/legal-entity based rather than merely branch-code based, because purchases booked through different locations can still belong to the same buyer and seller legal entities.
| Purchase position | TDS treatment |
|---|---|
| Cumulative purchases ₹40 lakh | No purchase-of-goods TDS yet |
| Next purchase ₹20 lakh; cumulative becomes ₹60 lakh | 0.1% on ₹10 lakh excess, subject to all conditions |
| Further purchase ₹8 lakh | 0.1% on the further covered amount |
Why the old 206C(1H) comparison should be removed from current SOPs
Many older 194Q articles still devote substantial space to deciding whether the buyer should deduct TDS or the seller should collect TCS under section 206C(1H). That is now stale for current purchase-of-goods compliance. Finance Act 2025 made section 206C(1H) inapplicable from 1 April 2025 to remove this duplicate compliance burden. Current TY 2026-27 SOPs should not continue an obsolete 194Q-versus-206C(1H) decision matrix.
Other TDS/TCS provisions can still matter. Section 393 Note 1 states that the purchase-of-goods item does not apply to a transaction on which tax is deductible or collectible under another provision of the Act. Therefore, classify the transaction before applying the purchase-of-goods rule.
206AB is also historical, not a 2026 higher-rate test
Old section 206AB, which imposed a special higher TDS rate for certain non-filers, was omitted from 1 April 2025. Do not run a TY 2026-27 vendor process that treats old 206AB status as a current purchase-of-goods withholding requirement. PAN-related and other current statutory controls should still be checked under the provisions actually applicable to the transaction.
Purchase-of-goods decision workflow
- Identify the transaction: confirm that the payment is genuinely for purchase of goods and not primarily a service, works contract, commission, rent or another separately covered payment.
- Check seller residence: section 393 resident-payment rules must be applied correctly; non-resident purchases require separate analysis.
- Check buyer turnover: was preceding-year business turnover above ₹10 crore?
- Aggregate vendor purchases: monitor the ₹50 lakh threshold during the tax year.
- Check another TDS/TCS provision: section 393 Note 1 prevents duplicate application where another provision governs the transaction.
- Deduct at the correct time: configure the credit/payment trigger under current section 393.
- Reconcile: match purchase ledger, vendor ledger, TDS payable, challans and TDS statement codes before filing.
ERP and accounts-payable controls
- Create a vendor-level cumulative purchase tracker that resets for each tax year.
- Store preceding-year business turnover evidence supporting buyer applicability.
- Map vendor PAN, residence status and legal entity before threshold monitoring.
- Flag vendors approaching ₹40–45 lakh so the next invoice does not cross the threshold unnoticed.
- Separate goods purchases from service, freight, works-contract and other expense categories where the legal treatment can differ.
- Update statutory master data from old 194Q terminology to section 393 Table 8(ii), while retaining the old reference in explanatory fields for audit transition.
- Remove obsolete 206AB and 206C(1H) workflow steps from current-year SOPs.
- Retain invoice, purchase order, vendor master, threshold working, TDS calculation, challan and return reconciliation.
Worked examples
Example 1 — threshold crossed: A qualifying buyer purchases ₹47 lakh from a resident seller and later books another ₹12 lakh. The cumulative amount becomes ₹59 lakh. Subject to the other statutory conditions, 0.1% applies to the ₹9 lakh amount exceeding ₹50 lakh.
Example 2 — buyer turnover below ₹10 crore: The buyer's preceding tax-year business turnover was ₹8 crore. Even if purchases from one resident seller exceed ₹50 lakh, the buyer definition for this specific purchase-of-goods withholding item is not met.
Example 3 — another TDS provision governs: A payment is legally a works contract rather than a straightforward purchase of goods. Do not mechanically apply the purchase-of-goods item merely because materials are involved; first determine the provision that governs the transaction.
Example 4 — old TCS workflow: An ERP still asks accounts payable whether the vendor will collect section 206C(1H) TCS. That field is obsolete for current sale-of-goods TCS because section 206C(1H) has not applied since 1 April 2025. Update the workflow.
Month-end checklist
- Run vendor-wise cumulative purchase report.
- Review all vendors above ₹40 lakh and all threshold-crossing entries.
- Check credit/payment timing and TDS booking.
- Review vendor PAN/residence/legal-entity changes.
- Check whether another TDS/TCS provision applies.
- Reconcile TDS payable with challan and statement data.
- Document manual overrides and unusual classification decisions.
Frequently asked questions
Does section 194Q still apply in TY 2026-27?
The old section number belongs to the Income-tax Act, 1961. The corresponding purchase-of-goods withholding rule is now in section 393(1), Table 8(ii) of the Income Tax Act, 2025.
What is the TDS rate on purchase of goods in 2026?
The current section 393 Table 8(ii) rate is 0.1%, subject to the statutory conditions.
What is the purchase threshold?
The purchase-of-goods item applies to the sum exceeding ₹50 lakh, subject to Note 1 and the buyer definition.
What turnover makes a person a buyer?
Business turnover must exceed ₹10 crore in the tax year immediately preceding the tax year of purchase.
Is the ₹50 lakh threshold per vendor?
Operationally, the threshold must be monitored for purchases from the relevant seller during the tax year.
Does old section 206C(1H) TCS still apply?
No. The sale-of-goods TCS provision under old section 206C(1H) became inapplicable from 1 April 2025.
Should I still check section 206AB non-filer status?
Not as a current 206AB requirement. Section 206AB was omitted from 1 April 2025.
What if another TDS provision applies to the transaction?
Section 393 Note 1 says the purchase-of-goods item does not apply where tax is deductible or collectible under another provision of the Act.
Does the rule apply to a non-resident seller?
The section 393 table discussed here concerns payments to residents. Purchases from non-residents require separate withholding analysis.
Should branches monitor the threshold separately?
Do not assume branch-wise separation where the legal buyer and seller are the same entities. Use a central legal-entity/vendor control.
Can I continue using the label 194Q in my ERP?
Keep the old reference only as a transition aid. Current statutory mapping should identify section 393 Table 8(ii).
What should auditors ask for?
Turnover applicability evidence, vendor-wise threshold workings, invoices, classification support, TDS calculations, challans, return reconciliation and documented exceptions.
Official references
- Income Tax Department — Income Tax Act, 2025 / section 393 and section 402
- Income Tax Department e-Filing portal
- Budget 2025 FAQ — omission of sale-of-goods TCS
For unusual composite contracts, non-resident purchases or transactions potentially covered by another withholding provision, verify the exact contract and current law before deduction.
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