Businesses buying goods from resident sellers need to update an old compliance habit after 1 April 2026: the familiar purchase-of-goods TDS rule continues, but the operative reference is now section 393(1), Table Sl. No. 8(ii) of the Income Tax Act, 2025, rather than section 194Q of the repealed 1961 Act. The Income Tax Department has clarified that TDS rates and monetary thresholds were retained in the new Act; the major practical change is the section reference and reporting framework.
What is the purchase-of-goods TDS rule?
Under the earlier section 194Q framework, a buyer whose business turnover exceeded ₹10 crore in the immediately preceding financial year had to deduct TDS when purchases from a resident seller exceeded ₹50 lakh in a financial year. TDS applied at 0.1% on the amount exceeding ₹50 lakh and was triggered at the earlier of credit or payment. The Income Tax Department's official section 194Q page records these core conditions for the old Act.
For transactions whose TDS trigger occurs on or after 1 April 2026, the Income Tax Department says the Income Tax Act, 2025 applies. Its TDS Compliance FAQs also state that TDS rates and monetary thresholds have been retained, while the provisions are consolidated under section 393.
Which section should businesses quote after 1 April 2026?
The Income Tax Rules, 2026 identify purchase of goods under section 393(1), Table Sl. No. 8(ii). The notified rules assign section code 1031 to this nature of payment. The official rules are available in the Income Tax Rules, 2026 notification.
This is not merely a drafting preference. The Department warns in its TDS guidance that quoting old section numbers for post-1 April 2026 transactions can cause system-level validation or processing errors and may require a correction statement.
How to test whether the rule applies
- Check the buyer's preceding-year turnover: the purchase-of-goods rule applies to a buyer meeting the ₹10 crore business-turnover test inherited from section 194Q.
- Confirm the seller is resident: the rule is designed for purchases from a resident seller. Non-resident payments require a different withholding analysis.
- Aggregate purchases seller-wise: monitor the value of goods purchased from each resident seller during the relevant year.
- Apply the ₹50 lakh threshold: TDS is calculated on the portion exceeding ₹50 lakh, not automatically on the entire purchase value.
- Use the earlier-of-credit-or-payment trigger: the Department's transition FAQs confirm that TDS obligations continue to depend on the earlier relevant event.
- Use the new Act reference: for a trigger on or after 1 April 2026, report under section 393 rather than the old 194Q reference.
Worked example
Assume ABC Ltd had business turnover of ₹18 crore in the immediately preceding financial year. During the current tax year it buys goods worth ₹72 lakh from a resident seller. Assuming no exclusion or competing TDS provision changes the result, the threshold is crossed by ₹22 lakh. At 0.1%, the basic TDS on the amount above ₹50 lakh is ₹2,200. The timing of deduction follows the earlier of credit or payment.
The important 2026 compliance point is that a transaction triggered after 1 April 2026 should be mapped to section 393(1), Table Sl. No. 8(ii), rather than being reported under the old section 194Q code.
What if the invoice includes GST?
CBDT's Circular No. 13 of 2021 provides practical guidance on section 194Q, including the treatment of GST where tax is deducted at the time of credit and the treatment of purchase returns. Because the new Act preserves the substantive rate and threshold framework, finance teams should retain the underlying CBDT guidance in their compliance files while also checking the current Act, Rules and portal instructions for the reporting year.
What about transactions covered by another TDS provision?
The old section 194Q itself contained coordination rules to avoid overlapping withholding on the same transaction, and CBDT Circular No. 13 of 2021 addressed cross-application issues. A purchase ledger should therefore not apply the goods-purchase code mechanically. First identify whether the payment is genuinely for goods and whether another specific withholding provision governs the transaction.
March 2026 versus April 2026: the transition rule
The date of payment alone does not always decide which Act applies. The Department's TDS FAQs state that the governing law depends on the earlier of credit or payment. If that earlier event occurred on or before 31 March 2026, the Income-tax Act, 1961 applies. If the earlier event occurs on or after 1 April 2026, the Income Tax Act, 2025 applies.
For example, goods credited to the seller's account on 30 March 2026 but paid for on 10 April 2026 remain tied to the old-Act TDS trigger because credit occurred first. Conversely, where both credit and payment occur after 1 April 2026, the new Act reference should be used.
Monthly control checklist for finance teams
- Maintain a seller-wise purchase register with PAN, residency and cumulative purchase value.
- Flag buyers meeting the preceding-year ₹10 crore turnover condition before the year begins.
- Set an alert before each seller approaches ₹50 lakh of annual purchases.
- Map post-1 April 2026 transactions to section 393(1), Table Sl. No. 8(ii) and the applicable reporting code.
- Review advances and year-end provisions because the earlier-of-credit-or-payment rule can trigger TDS before cash settlement.
- Check whether another specific TDS provision applies before treating a transaction as a simple purchase of goods.
- Retain invoice, ledger and threshold workings so the basis of deduction is auditable.
Common mistakes to avoid
- Using section 194Q in a post-April 2026 TDS return: the Department specifically cautions against old section references after the new Act takes effect.
- Deducting on the full purchase value after crossing ₹50 lakh: the basic rule applies to the amount exceeding the threshold.
- Checking only the current year's buyer turnover: the buyer test uses business turnover of the immediately preceding financial year.
- Waiting until payment: credit can trigger TDS earlier.
- Ignoring seller-wise aggregation: the threshold has to be monitored against cumulative purchases from the resident seller.
Practical takeaway
The purchase-of-goods TDS rule did not disappear with the Income Tax Act, 2025. For post-1 April 2026 transactions, finance teams should preserve the familiar ₹10 crore buyer-turnover test, ₹50 lakh seller-wise purchase threshold and 0.1% rate, but use the new section 393 reporting framework. The cleanest control is a seller-wise cumulative purchase tracker linked to the earlier-of-credit-or-payment date and the correct new-Act section code.
