TDS on purchases the section map.

Author : purchase pro | Published On : 27 Aug 2026

TDS on purchases is the part of the tax code that decides, every single time you book a supplier invoice, how much of the payment goes to the supplier and how much goes to the government on the supplier’s behalf. Get it wrong by under-deducting and you risk losing 30% of the expense as a tax deduction. Get it wrong by over-deducting and you have an unhappy supplier and a refund cycle to manage. This guide is the section map your AP team can keep on the wall.

The article covers the four TDS sections that touch most purchase invoices, the rates and thresholds for FY 2025-26, and the mistakes that quietly cost teams the deduction. One important simplification at the top: TCS on sale of goods under Section 206C(1H) was removed with effect from 1 April 2025. The old confusion about whether the buyer deducts TDS under 194Q or the seller collects TCS under 206C(1H) is gone. On purchase of goods, only 194Q now applies.

What changed, and what didn’t.

For three years until April 2025, the law had two parallel provisions on goods transactions. Buyers above a turnover threshold deducted TDS under 194Q; sellers above the same threshold collected TCS under 206C(1H). When both applied, 194Q took precedence, but teams ran the wrong one all the time. The Finance Act 2025 removed 206C(1H), so the question now reduces to one: did the buyer cross the 194Q threshold or not.

The other half of the picture, the TDS sections on services, rent, and contract work, did not change. 194C still applies to contract and works payments. 194J still applies to professional and technical services. 194I still applies to rent. The sections most AP teams hit on a weekly basis were not part of the April 2025 change at all.

One forward-looking note worth keeping in view. The Income-tax Act 2025 consolidates the entire 194-series into a single Section 393 with payment codes from 1001 to 1067, effective 1 April 2026. The underlying rates and thresholds largely carry over; the section numbers will not. For your FY 2025-26 return, you still file under the old labels.

The section map your AP team actually uses.

Every supplier invoice your team books falls into one of a small number of buckets. The bucket decides the section, and the section decides the rate and the threshold.

Two rules apply across all sections. Without a valid PAN, the rate jumps to 20% under Section 206AA, with the exception of 194Q where the no-PAN rate is 5%. And the TDS amount, regardless of section, has to be deposited with the government by the 7th of the month following deduction, with quarterly returns in Form 26Q.

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Classify at the PO, not at the invoice.

The single most useful control is to tag the TDS section on the purchase order, not when the invoice arrives. By invoice time, the AP clerk is reading a description and guessing. At PO time, the buyer knows whether they are ordering goods, contract work, professional services, or rent, and can set the section once. Every invoice from that PO inherits the right treatment.

194Q in detail — the section most teams get wrong.

194Q is the newest of the four and the one with the most moving parts. It is worth a closer look because it interacts with both turnover and seller-wise thresholds.

Two thresholds, applied in order

The section applies only if both conditions are true. First, your turnover in the preceding financial year exceeded ₹10 crore. If you are below that, 194Q does not touch you at all. Second, your purchases from a single resident seller in the current financial year exceeded ₹50 lakh. The 0.1% rate applies on the amount over ₹50 lakh, not on the full purchase value. So on ₹70 lakh of purchases from one seller, you deduct on ₹20 lakh, which works out to ₹2,000.

GST is excluded

Both the ₹50 lakh threshold and the 0.1% calculation are on the value of goods excluding GST, provided the GST is shown separately on the invoice. Deducting on the GST-inclusive amount is a common error that quietly increases TDS by 18%.

The PAN trap

If the seller fails to furnish a PAN, the rate under 194Q jumps from 0.1% to 5%. That is a fiftyfold increase. The control is simple: validate seller PAN at vendor master creation, not at the first invoice.

Timing

TDS under 194Q is deducted at the time of credit to the seller’s account or actual payment, whichever is earlier. For most AP cycles, that is the day you book the invoice.

“For buyers above ₹10 crore turnover, 194Q is now the only goods-TDS section to track. Use the simplification: clean the vendor master, validate PAN, tag the section at PO.”

Where AP teams slip.

The errors are consistent across every team we see.

Reading the section off the invoice

If your AP clerk is choosing between 194C and 194J at the moment of booking, the call will be wrong half the time. Classify at PO. Every invoice from that PO carries the section forward.

Forgetting Section 40(a)(ia)

This is the cost teams underestimate most. If you fail to deduct TDS where you should have, 30% of the related expense is disallowed as a deduction in your tax computation. That is on top of the interest and penalty on the missed TDS. A missed ₹2,000 deduction can disallow ₹6 lakh of expense.

Deducting on the GST-inclusive amount

Covered above, and worth repeating because it is silent. The 18% over-deduction does not show up anywhere obvious; it just lands in the supplier’s 26AS and shows up as a refund cycle for them.

Missing the threshold across the year

194Q and 194C both have annual aggregates. Your AP team has to look at year-to-date purchases per seller, not invoice-by-invoice. A single ₹15 lakh order from a vendor is below 194Q. The third such order in the same year crosses ₹50 lakh and triggers deduction from there on.

Skipping PAN validation

The 50× rate increase under 194Q without PAN, and the 20× increase under 206AA across other sections, are entirely preventable. Validate at vendor master.

Missing the 7th of the month

TDS deducted in month M has to be deposited by the 7th of month M+1. Interest under Section 201(1A) runs at 1.5% per month on the unpaid amount from the date of deduction. Missing this is more expensive than missing the deduction itself.

The TDS-on-purchases checklist.

Build these into the AP workflow and the section judgement stops being a judgement.

See your TDS exposure by section, live.

The PurchasePro TDS Register tracks every supplier against the right section, runs the YTD threshold check on 194Q and 194C, and flags missing PAN before the rate jumps.

Closing thoughts.

TDS on purchases is one part of a broader pattern. Across the last two years, three rules have come to mean the same thing: late, sloppy, or under-classified AP work no longer just costs you the supplier relationship, it costs you the tax deduction.