India’s goods buyers face sharper Section 194Q checks after seller-side tax collection ends

Businesses with turnover above ₹10 crore must track supplier purchases beyond ₹50 lakh and deduct tax before payment under Section 194Q, with the removal of seller-side collection making buyer compliance the central obligation.

Businesses that buy large volumes of goods need to keep close watch on Section 194Q of India’s income tax law, because the obligation to deduct tax can arise before a payment is ever made. Under the rule, a buyer with turnover above ₹10 crore in the previous financial year must deduct tax at source at 0.1% once purchases from a resident supplier cross ₹50 lakh in a year, and the tax applies only to the amount above that threshold. Several compliance guides say the provision has been carried into the Income Tax Act, 2025 in a table-based format, with the rate and threshold unchanged, even though the section number and reporting labels have been updated.

The trigger depends on two separate tests, and both must be met. The buyer’s turnover in the immediately preceding year must be more than ₹10 crore, not merely equal to that amount, and the seller must be a resident supplier of goods. The tax is calculated seller by seller, not invoice by invoice, so businesses must track cumulative purchases over the financial year. According to the guides, once the running total from one supplier passes ₹50 lakh, the buyer deducts tax only on the excess, a detail that is often missed in routine accounts processing.

Timing is another point that catches businesses out. The deduction must be made at the earlier of booking the liability in the books or actually paying the supplier, which means even an unpaid purchase entry can create a tax obligation. Where the invoice shows goods and GST separately, the Central Board of Direct Taxes has said the tax base should generally exclude the GST component. But if a payment is made in advance and the GST element cannot be separately identified, compliance notes say the deduction may have to be applied to the full amount. That is why many advisers tell businesses to insist on invoices that break GST out clearly.

The rule also has important carve-outs. It does not apply to payments to non-residents, while recognised stock exchange trades settled through recognised clearing corporations are excluded, as are electricity transactions. Compliance guides also say that where another tax-deduction rule already covers the same transaction, Section 194Q does not apply again. In practice, that matters for mixed contracts that combine goods and services, where the buyer must first decide which provision governs the payment rather than automatically applying the goods rule.

The overlap with seller-side tax collection has now been removed. Several guides note that Section 206C(1H), which previously required certain sellers to collect tax on goods sales, was withdrawn from 1 April 2025, leaving the buyer-side deduction under Section 194Q as the operative rule. That makes the compliance burden clearer, but not lighter. Businesses still need to monitor vendor-wise thresholds, check PAN details, deposit tax on time, and file the correct quarterly statements and certificates under the updated return structure. Failure to deduct can be expensive: compliance materials warn of interest, penalties and disallowance of a portion of the purchase expense, which can dwarf the tax itself.

For finance teams, the practical answer is to build a simple monthly process: confirm that the business has crossed the turnover test, track purchases by supplier, watch the ₹50 lakh threshold, separate GST on invoices, and make deductions as soon as the books record the liability or the payment leaves the bank. In larger organisations, that usually means tighter vendor ledgers, automated alerts and a clear rule for purchase orders and contracts. In smaller businesses, it often means a manual register and regular review, because the threshold is annual but the mistake is usually made in a single month.