Since July 2021, large buyers have had to deduct a small TDS on big purchases of goods. Under the Income-tax Act, 1961 this was section 194Q. From 1 April 2026, the same rule sits in the table under section 393 of the Income-tax Act, 2025, with the same rate and limits, as of October 2026. The amount is small, but missing it can lead to the purchase being partly disallowed as an expense.
01Who must deduct
All three conditions must be met:
- You are a buyer carrying on a business.
- Your total sales, gross receipts or turnover from the business were above ₹10 crore in the year before the year of purchase.
- You buy goods from a resident seller worth more than ₹50 lakh in the year.
If your turnover was ₹10 crore or less last year, this TDS does not apply to you this year, however much you buy.
02How much
| Item | Rule |
|---|---|
| Rate | 0.1% |
| On | The purchase value above ₹50 lakh from that seller in the year |
| When | At the time of credit to the seller's account or payment, whichever is earlier |
| Seller without PAN | A higher rate applies |
The ₹50 lakh is counted for each seller separately.
03A worked example
A Morbi tile maker with ₹60 crore turnover last year buys clay and feldspar from a Gujarat mining company. Purchases from this seller in 2026-27:
| Month | Purchase | Running total | TDS |
|---|---|---|---|
| April to July | ₹42,00,000 | ₹42,00,000 | Nil |
| August | ₹15,00,000 | ₹57,00,000 | 0.1% of ₹7,00,000 = ₹700 |
| September | ₹12,00,000 | ₹69,00,000 | 0.1% of ₹12,00,000 = ₹1,200 |
From August, every rupee bought from this seller attracts 0.1%. The tile maker deposits the TDS by the 7th of the following month and reports it in its quarterly statement.
An advance paid to the seller after the ₹50 lakh mark has been crossed attracts TDS when it is paid, even before the goods are billed.
04What counts as goods
The rule covers purchases of goods of any kind: raw material, traded goods, packing material, spares and capital goods. It does not cover services, which have their own TDS entries such as those for contractors and professional fees.
Where another TDS entry already applies to a payment, that entry is used and this one does not apply on the same amount.
05The seller's side
Until 31 March 2025, sellers with turnover above ₹10 crore had to collect TCS on sales above ₹50 lakh to one buyer, under section 206C(1H). If the buyer deducted TDS, the seller did not collect TCS. The Finance Act, 2025 stopped TCS on sale of goods from 1 April 2025. On an ordinary purchase, only the buyer's TDS is now relevant.
For sellers, the effect is that 0.1% of their sales to large buyers shows up as TDS credit in their Form 26AS. A Jamnagar brass parts supplier selling ₹3 crore a year to an automotive company should expect TDS of ₹25,000 on those sales: 0.1% of ₹2.5 crore.
06GST and this TDS
The rule is part of income tax, separate from GST. Under the old law, the CBDT said that where TDS is deducted at the time of credit, it is worked out on the purchase value without the GST shown on the invoice, and that where it is deducted at the time of an advance payment, it is worked out on the amount paid. Check how your CA applies this under the new Act before your first deduction of the year.
07Common mistakes
- Counting the ₹50 lakh across all sellers in place of each seller separately.
- Forgetting the turnover test resets each year. A buyer at ₹9.8 crore last year is outside the rule this year, and inside it next year if turnover crosses ₹10 crore.
- Missing advances. TDS applies at payment if that comes before the invoice.
- Not updating the seller's PAN. The higher rate for a missing PAN is much more than 0.1%.
08For the accounts team
Keep a running total of purchases by seller from 1 April. When a seller crosses ₹50 lakh, mark it, and deduct 0.1% on every bill from then on. At the end of each quarter, check the totals against the statement before filing.
09How it sits with other TDS entries
Purchases of goods are often mixed with services on the same bill. A Rajkot machine buyer that pays one supplier for a machine and for its installation deducts 0.1% on the machine value under the purchase of goods entry, once the ₹50 lakh mark is crossed, and TDS under the contractor entry on the installation charge, where that entry applies. Splitting the bill into goods and service lines makes the deduction clear for both sides.
Buyers who are not liable because their own turnover was ₹10 crore or less do not deduct, even when a seller asks them to. The seller has no TCS to collect either, after 1 April 2025, so neither side deducts anything on such purchases.
10Checks at the end of each quarter
- List sellers above ₹50 lakh for the year so far, with the date each crossed it.
- Compare TDS deducted with 0.1% of purchases after that date. Differences usually come from debit or credit notes, or from bills booked in the wrong month.
- Check PANs for every seller on the list.
- File the quarterly statement and give sellers their certificates, so they can see the credit in Form 26AS.
11For sellers dealing with large buyers
A seller whose customers include large companies should check that the TDS appears against its PAN each quarter. Where it does not, the buyer may have deducted and not filed, or used a wrong PAN. Raising it before the seller's own income tax return is due saves a mismatch notice later.
This guide is general information as of October 2026 and does not amount to tax advice.
In MatruOS, each supplier's record page shows its bills and payments, which makes the year's running total easy to see.