The TDS rule on purchase of goods survived the move to the Income-tax Act, 2025. For any transaction where the earlier of credit or payment falls on or after 1 April 2026, the buyer deducts tax under section 393(1), Table Serial No. 8(ii), instead of section 194Q of the Income-tax Act, 1961. The rate, the ₹50 lakh threshold and the ₹10 crore buyer test are unchanged. What changes is the section a deductor quotes, and getting that wrong now causes processing errors.
This guide covers who must deduct, how to compute the threshold seller by seller, how GST and purchase returns are handled under CBDT's guidelines, how the rule interacts with other TDS and TCS provisions, and which Act applies to transactions spanning March and April 2026.
The provision under the 2025 Act
Serial No. 8(ii) of the table in section 393(1) of the Income-tax Act, 2025 sits in the part of the table for payments to residents. It covers "any sum exceeding fifty lakh rupees for purchase of any goods", paid by "any person, being a buyer", at a rate of 0.1%. Note 1 to the table adds two conditions:
- the deduction under Serial No. 8(ii) does not apply to a transaction on which tax is deductible or collectible under any other provision of the Act; and
- tax is deducted on the sum exceeding fifty lakh rupees, not on the whole purchase value.
For payments to residents, section 393(1) requires deduction at the time of credit of the sum to the payee's account or at the time of payment in cash, by cheque, by draft or by any other mode, whichever is earlier.
The Income Tax Department's TDS compliance FAQs on the transition confirm that TDS rates and monetary thresholds for all categories of payments have been retained from the 1961 Act, and describe section 393 as a simplified tabular presentation, not a change in rates or policy.
Who is a buyer
The 2025 Act moves the definition into section 402(6). For purchase of goods, a buyer is a person whose total sales, gross receipts or turnover from the business carried on by him exceeded ₹10 crore during the tax year immediately preceding. The definition excludes any person the Central Government notifies for this purpose, subject to conditions in that notification. The old section 194Q used the same ₹10 crore test with reference to the immediately preceding financial year.
Three practical consequences follow from CBDT's guidelines on section 194Q, which the Department continues to host as Circular No. 13/2021 dated 30 June 2021:
- Only business turnover counts. Sales, gross receipts or turnover from business are considered. Receipts that are not from business are left out of the ₹10 crore test.
- No liability in the year of incorporation. A new entity has no preceding year turnover above ₹10 crore, so the rule cannot apply in its first year.
- Non-resident buyers. The rule does not apply to a non-resident whose purchase of goods from a resident seller is not effectively connected with its permanent establishment in India.
Transactions the rule does not cover
Circular 13/2021 excludes transactions in securities and commodities traded through recognised stock exchanges or cleared and settled by recognised clearing corporations, including those in International Financial Services Centres. It also excludes electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered under CERC regulations. The reason given is that the buyer and seller cannot be matched in exchange trades.
Purchases from a seller whose entire income is exempt, under section 10 of the 1961 Act or under another law passed by Parliament such as the RBI Act, were also kept out. A seller with only some exempt income does not qualify for this exclusion.
Priority when another TDS or TCS provision also applies
Note 1 to the 2025 table keeps the old logic: if another provision requires tax to be deducted or collected on the same transaction, Serial No. 8(ii) steps aside. Circular 13/2021 worked through the common overlaps under the 1961 Act:
- E-commerce: where a transaction falls under both section 194-O and section 194Q, tax is deducted under section 194-O only.
- TCS on sale of goods: where the buyer was liable under section 194Q and the seller under section 206C(1H), the buyer deducted and the seller did not collect. If the seller had already collected before the buyer could deduct, the buyer did not deduct again on the same transaction.
- Other TDS sections: section 194Q did not apply to a transaction on which tax was deductible under any other provision, or collectible under section 206C other than sub-section (1H).
Before posting a purchase to the goods code, confirm that the invoice is genuinely for goods. A composite contract that is in substance a works contract or a service will fall under a different row of the section 393 table.
GST: deduct on the value before tax when deducting on credit
Circular 13/2021 states that when tax is deducted at the time of credit and the GST component is indicated separately in the agreement or invoice, tax is deducted on the amount credited without including GST. When tax is deducted at the time of payment because payment comes before credit, as with an advance, tax is deducted on the whole amount, because the GST component cannot be identified at that stage.
Example: a buyer that has already crossed ₹50 lakh with a seller receives an invoice for goods of ₹10,00,000 plus GST at 18% of ₹1,80,000. If the buyer deducts on credit, TDS is ₹1,000 (0.1% of ₹10,00,000). If the buyer had instead paid an advance of ₹11,80,000 before the invoice, TDS would be ₹1,180 (0.1% of ₹11,80,000).
Purchase returns and advances
The circular confirms that the rule applies to advance payments made by the buyer to the seller. On purchase returns, it explains that tax will already have been deducted when the purchase was booked. If goods are later returned and the seller refunds the price, the tax deducted may be adjusted against later purchases from the same seller. If the seller replaces the goods instead of refunding, no adjustment is needed, because the purchase on which tax was deducted still stands.
Example: a buyer deducted ₹500 on a ₹5,00,000 purchase above the threshold and then returned those goods for a refund. On a later purchase of ₹8,00,000 from the same seller, the TDS otherwise due is ₹800. Adjusting the ₹500 already deducted on the returned goods, the buyer deducts ₹300. Keep the return note, refund entry and working in the file.
Computing the threshold seller by seller
The ₹50 lakh limit is counted separately for each seller across the year, and only the excess is taxed. Suppose a buyer with preceding year business turnover of ₹18 crore buys goods (values before GST) from one resident seller as follows:
| Month | Purchase | Cumulative | Amount above ₹50 lakh in the month | TDS at 0.1% |
|---|---|---|---|---|
| April | ₹15,00,000 | ₹15,00,000 | Nil | Nil |
| May | ₹20,00,000 | ₹35,00,000 | Nil | Nil |
| June | ₹18,00,000 | ₹53,00,000 | ₹3,00,000 | ₹300 |
| July | ₹12,00,000 | ₹65,00,000 | ₹12,00,000 | ₹1,200 |
Total TDS for the year to July is ₹1,500, which equals 0.1% of the ₹15 lakh above the threshold. On a single annual figure, purchases of ₹72 lakh from one seller would give TDS of ₹2,200 on the ₹22 lakh excess.
March 2026 or April 2026: which Act applies
The Department's TDS FAQs state that the governing Act depends on the earlier of credit or payment. If the earlier event occurred on or before 31 March 2026, the Income-tax Act, 1961 applies. If it occurs on or after 1 April 2026, the Income-tax Act, 2025 applies.
So goods credited to the seller's account on 30 March 2026 and paid for on 10 April 2026 stay under section 194Q, because credit came first. Goods both credited and paid after 1 April 2026 fall under section 393(1), Serial No. 8(ii). The FAQs warn that citing an old section number for a post-transition transaction, for example section 194C instead of section 393(1) Serial No. 6(i), may lead to processing errors and may require a correction statement. The same risk applies to reporting purchases under section 194Q. The Income-tax Rules, 2026 (G.S.R. 198(E), 20 March 2026) contain the procedural provisions that now govern the statements.
Monthly controls for the accounts team
- Test the ₹10 crore business turnover condition once, at the start of the tax year, using the preceding year's audited figures.
- Keep a seller-wise purchase register with PAN, residential status and cumulative value before GST.
- Set an alert when any seller crosses ₹40 lakh, so the crossing month is caught.
- Flag exchange trades, power exchange purchases, 194-O marketplace purchases and purchases from wholly exempt sellers as outside the rule.
- Deduct on advances at payment, on the full amount including GST.
- Track refunds on purchase returns and adjust the tax only against later purchases from the same seller.
- Map every transaction with a trigger on or after 1 April 2026 to section 393(1), Serial No. 8(ii).
Common errors
- Deducting on the full annual purchase after crossing ₹50 lakh, instead of on the excess only.
- Applying the buyer test to current year turnover instead of the preceding year.
- Deducting on the GST-inclusive value when tax is deducted on credit and GST is shown separately.
- Waiting for payment when the credit entry came earlier.
- Quoting section 194Q in a statement for transactions triggered after 1 April 2026.
Updated on 27 September 2026: merged our separate guide on buyer threshold, GST treatment and purchase returns into this page; added the exact section 393 and section 402 text, CBDT Circular 13/2021 guidance on exclusions, GST, advances, returns and overlapping provisions, and new worked examples. The unverified section code reference has been removed.
