TDS on Purchase of Goods: Key FAQs [Section 393(1), Sr. No. 8(ii) | Earlier Section 194Q]

The provisions earlier governed under Section 194Q have now been incorporated under Section 393(1), Serial No. 8(ii) of the new Income-tax framework. However, there is no substantive change in the underlying principle and the applicability, scope, and compliance requirements remain materially the same.

Section 393(1), Serial No. 8(ii) applies to a buyer who is responsible for paying any sum to a resident seller for the purchase of goods.

A buyer is required to deduct TDS if:

1. The total sales, gross receipts, or turnover of the buyer exceeds Rs 10 crore during the preceeding financial year, and

2. The aggregate value of purchases from a seller exceeds Rs 50 lakh during the current financial year.

Frequently Asked Questions

Basic Questions

Q1. Is Section 393(1), Serial No. 8(ii) applicable to the purchase of services?

No. Section 393(1), Serial No. 8(ii) applies exclusively to the purchase of goods - both movable and capital goods. If a mixed contract involves both goods and services, the dominant element or the separately invoiced portion determines applicability.

Applicability

Q2. If a purchase was credited before 31 March 2026 but paid after 1 April 2026, which Act governs?

TDS applicability is determined by the earlier of credit or payment. If the earlier event (credit) occurred before 31 March 2026, the Income Tax Act 1961 governs. If both credit and payment occur on or after 1 April 2026, Section 393 of the new Act applies.

Q3. Is the Rs 10 crore turnover threshold inclusive of GST?

No. As per CBDT Circular No. 13 of 2021, the turnover of Rs 10 crore is to be computed excluding GST. Businesses must strip out GST components while calculating their eligibility threshold for this section. And also the TDS is calculated on the amount excluding GST.

Click on the below link to refer to Circular No 13/2021.

Q4. If a buyer's turnover was below Rs 10 crore last year but crosses it this year, does Section 393(1), Serial No. 8(ii) apply currently?

The applicability of the provision is determined based on the turnover of the immediately preceding financial year and not the current financial year. Accordingly, if the buyer’s turnover did not exceed Rs 10 crore in the preceeding financial year, the provisions of Section 393(1), Serial No. 8(ii) shall not apply for the current financial year. This position remains unchanged even if the buyer’s turnover exceeds Rs 10 crore during the course of the current year & In such cases, the provisions of Section 393(1), Serial No. 8(ii) shall become applicable in the immediately succeeding financial year, subject to the turnover threshold being exceeded in the current year.

Q5. Is Section 393(1), Serial No. 8(ii) applicable to purchases through exchanges or commodity exchanges?

No. Transactions in securities traded on recognised stock exchanges and goods traded through recognised commodity exchanges are excluded from the scope of Section 393(1), Serial No. 8(ii), as these are already subject to STT/CTT and regulated reporting requirements.

Q6. Does Section 393(1), Serial No. 8(ii) apply to purchases of immovable property?

No. Immovable property is separately covered under Section 194-IA (now mapped to Section 393(1) of the new Act). Section 393(1), Serial No. 8(ii) applies only to movable goods. Agricultural land and other specified immovable assets have their own dedicated TDS provisions

Rates, Threshold & Computation

Q7. Is the Rs 50 lakh threshold per transaction or per financial year?

The Rs 50 lakh threshold is per seller per financial year. Once the cumulative purchases from a single seller in a financial year cross Rs 50 lakh, TDS is deducted on the excess amount only. Each seller must be tracked independently for this purpose.

Q8. If goods worth Rs 30 lakh were purchased in Q1 and Rs 25 lakh in Q2 from the same seller, when is TDS deducted?

TDS becomes applicable when cumulative purchases cross Rs 50 lakh. In this scenario (Rs 55 lakh total by Q2), TDS of 0.1% applies on Rs 5 lakh (Rs 55L – Rs 50L), i.e., Rs 500. On all subsequent purchases from that seller during the year, TDS applies on the full invoice value excluding GST.

Q9. How do debit notes or credit notes affect TDS computation under Section 393(1), Serial No. 8(ii)?

A debit note issued by the Seller for price escalation increases the purchase value and subsequently TDS should be deducted on the increased amount.

A credit note from the seller reducing the purchase value can proportionately reduce the TDS base going forward.

• If TDS has not yet been deducted: TDS should be computed on the net amount after adjusting the credit note.

• If TDS has already been deducted:

(i)  The Act does not provide a mechanism for refund/adjustment of TDS already deducted and deposited.

(ii) Practically, the buyer may adjust such excess TDS in subsequent transactions with the same seller during the year, if feasible.

Q10. Is TDS under Section 393(1), Serial No. 8(ii) applicable on advance payments?

Yes. TDS must be deducted at the time of payment or crediting of the amount to the seller's account, whichever is earlier. Advance payments towards future purchases are therefore included, and TDS must be deducted at the time of making such advance payment.

Exemptions & Exclusions

Q11. When is Section 393(1), Serial No. 8(ii) not applicable even if the threshold is crossed?

Section 393(1), Serial No. 8(ii) is not applicable where (a) the seller is a non-resident; (b) goods are traded on a recognised stock/commodity exchange; (c) goods are specifically notified as exempt by CBDT.

Q12. Does Section 393(1), Serial No. 8(ii) apply to purchases of fuel, electricity, or agricultural produce?

Purchases of certain goods notified by CBDT - such as motor spirit, high-speed diesel, and other specified items- may be excluded. CBDT Circular No. 13 of 2021 lists specific categories and exclusions. Transactions in these goods on commodity exchanges are also excluded.

Compliance & Procedures

Q13. In which TDS return must Section 393(1), Serial No. 8(ii) deductions be reported?

All deductions under Section 393(1), Serial No. 8(ii) must be reported in Form 140 (Quarterly TDS Return for non-salary payments to residents) (Earlier Form 26Q).

Q14. What certificate must the buyer issue to the seller for TDS deducted under Section 393(1), Serial No. 8(ii)?

The buyer must issue Form 16A (TDS Certificate for non-salary payments) to the seller on a quarterly basis. Under the Income Tax Act 2025 and Rules 2026, Form 16A has been renumbered as Form 131, but the content and purpose remain the same.

Q15. How does the seller claim credit for TDS deducted under Section 393(1), Serial No. 8(ii)?

TDS deducted by the buyer is reflected in the seller's Form 26AS and Annual Information Statement (AIS). The seller can claim this as TDS already paid while filing their Income Tax Return (ITR). Any excess TDS can be claimed as a refund.

Q16. Is TAN mandatory for the buyer to deduct TDS under Section 393(1), Serial No. 8(ii)?

Yes. A buyer must hold a Tax Deduction Account Number (TAN) to deduct and deposit TDS. Without TAN, TDS cannot be properly deposited or reported. TAN requirements remain unchanged under the Income Tax Act 2025.

Penalties & Consequences

Q17. What are the consequences of not deducting TDS under Section 393(1), Serial No. 8(ii)?

Non-deduction results in: (1) Disallowance of 30% of the purchase amount as expense under Section 35(b) [Earlier Section 40a(ia)] (2) Interest at 1% per month from the date TDS was deductible to the date of actual deduction; and (3) As per Clause 448 of Finance Bill 2025, Penalty equal to the amount of TDS not deducted.

Q18. What is the interest rate for late deposit of TDS under Section 393(1), Serial No. 8(ii)?

As per [Section 398 (3) (a) (ii)] Interest at 1.5% per month (or part thereof) is levied from the date TDS was deducted to the date of actual deposit. This is in addition to the 1% interest for late deduction under [Section 398 (3) (a) (i)]. Both interest charges can accumulate substantially on large transactions.

Q19. Is there a penalty for late filing of TDS returns under Section 393(1), Serial No. 8(ii)?

Yes. Section 427 levies a mandatory late filing fee of Rs 200 per day for each day of delay, subject to a maximum of the TDS amount payable. Additionally, Section 461 provides for a penalty between Rs 10,000 and Rs 1,00,000 for failure to file or filing incorrect TDS statements.

Disclaimer: This material and the information contained herein is intended for clients and other Chartered Accountants to provide updates and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.