Introduction:
This document provides information on changes to TDS/TCS provisions relating to the sale of goods. It should help persons concerned with the sale and purchase of goods to understand the revised TDS/TCS provisions.
TDS under Section 194Q and TCS under Section 206C(1H) used to relate to the sale of goods. As per the changes in the law, with effect from 1st April 2025, Section 206C(1H) would not apply to collect TCS from the sale of goods. The change was brought to eliminate duplication in provisions relating to buyer (TDS) and seller (TCS) provisions.
Provisions relating to TDS under Section 194Q continue to be in force. However, with effect from 1st April 2026, the provisions of the Income-tax Act, 1961 (hereafter âthe old Actâ) would not apply, and the Income-tax Act, 2025 (hereafter âthe new Actâ) would apply. Accordingly, the TDS provisions relating to the purchase of goods would be located in Chapter XIV-C of the new Act.
We understand that your organization is also located in Bangalore. The changes discussed above are expected to help your organization understand the latest provisions for TDS/TCS for the sale of goods and for other associated activities like tax accounting and reconciliation with vendors.
What was Section 194Q of the old Act?
Pursuant to the old Act, any buyer was obligated to deduct TDS from the sale consideration payable to a resident seller as per the provisions of Section 194Q. The specific provisions would apply to a buyer if the following conditions are satisfied:
The aggregate of the buyerâs turnover or gross receipts during the immediately preceding financial year exceeds the prescribed limit.
The aggregate of the purchases of goods of that resident seller during the year exceeds fifty lakh rupees.
Other conditions under that provision are also satisfied.
The TDS rate, as per that provision, was 0.1% on the amount by which the purchase consideration exceeded fifty lakh rupees.
From the 1st of April, 2026, the relevant provisions relating to the Income Tax Act, 2025, will be applicable to transactions to which the Income Tax Act, 2025, applies. In the transitional provisions, the ingredients of the new law will be the same as the old law. Hence, it can be expected that the provisions of the new income tax act, 2025, will not result in any change in the TDS provisions.
Because of the above, it can be expected that the Income Tax Department will not accept the TDS returns for transactions that happen after the 1st of April, 2026, if old provisions of the Income Tax Act are quoted.
Why is Section 206C(1H) not present?
As per the old rules, the provision of 206C(1H) was applicable if the receiver of the money was an individual or a HUF; the seller had to deduct tax at the source if the sale value in a financial year was more than 50 lakh.
As per this provision, TCS was to be deducted by the seller, and TDS was to be deducted by the buyer. This resulted in an uncertainty for the buyer as to whether TCS has been deducted by the seller.
To remove this uncertainty, the Finance Act, 2025, provided that from 1st April 2025, this provision will not apply.
Hence, from 2025-26, this provision will not be applicable for TCS on sale of goods.
Section 194Q vs. Section 206C (1H)
Particulars
Nature
Responsibility
Transactions
Earlier Limits
Earlier Rates
Status
This table demonstrates the historical alignment of the two provisions. In practice, a business must evaluate the law that is current at the time of the transaction.
Which Businesses Are Affected?
Large Businesses and Corporates
Businesses in the corporates and large business segments must track the purchase limit for each vendor and ensure the provision for TDS is charged where due.
Small Businesses and Start-ups
Businesses that are likely to cross the threshold limit should track purchases by vendors.
Manufacturers and Traders
Traders should maintain records of invoices, vendors, and payments for the goods purchased.
Businesses in Bangalore
Businesses in Bangalore should implement TDS on payments made to vendors and should not defer this to the end of the year. This is especially true for businesses in Seshadripuram and other business districts in Bangalore.
NRI and International Businesses
In the case of NRIs and businesses with cross-border transactions, additional factors must be considered, especially the residence status of the NRI and the nature of the transaction.
Important Information and Records to be Retained by the Business
For compliance with TDS provisions, Bangalore businesses need to retain the following records:
PAN of the Supplier
Master records of suppliers
Invoice for purchase
Purchase order
Records of Receipt of Goods
Totals of purchases from vendors
Records of payments and credit
Records of TDS Deducted
Challans of TDS
Returns of TDS
Ledger accounts
Purchase invoices charged to cost (if tax is not deducted)
Records relating to tax deduction
Fulfillment of TDS provisions would require identification of taxable transactions. Once identified, threshold provisions need to be analyzed. If the threshold is crossed, the vendor should be identified and his PAN should be obtained. TDS should be deducted once the provisions are satisfied. The deductions should be made as per the provisions, and the tax should be paid to the government.
The Income Tax Department has announced that the provisions relating to TDS would be governed by the Income Tax Act, 2025, from 1 April 2026. Till then, the provisions would be governed by the previous Act.
Step 7: File the TDS Return
Complete the relevant TDS return and reconcile with books, challans, and vendor records.
Step 8: Reconcile and Correct
Review and amend the return as necessary for corrections of discrepancies relating to the Challan, PAN, the amount of deduction, and other details reported in the return.
Common Mistakes Made by Businesses
Using Old Rules of Section 206C(1H)
Even after 1st April 2025, if the old TCS checklists are in use by the business, it shows lack of awareness regarding the provisions.
Applying TDS to Prohibited Transactions
Not all purchases entail the charge of TDS because of the provision of âTDS on purchase of goodsâ. Conditions, thresholds, and parties involved should be evaluated in this regard.
Inadequate Vendor-Wise Tally
If purchases are not vendor-wise evaluated, it may result in an inability to meet the threshold limits.
Miscellaneous
TDS records should be reviewed and amended, if necessary, for reconciliation with accounting records, challans, return records of vendor, and other records.
Prior professional tax consultation is advised for the following:
- Identifying the applicable provisions of deduction of tax at source
- Reviewing contracts/agreements with vendors
- Examining thresholds
- Maintaining and retaining records
- Supporting the filing of TDS returns
- Reconciling TDS records
- Understanding and interpreting amendments in the provisions of tax laws
The above services are preferable for small, medium and large enterprises; start-ups; growing and newly set up enterprises; and other entities that have substantial transactions and employee strength.
What Makes Pavan Kumar & Co Different?
Opened in 1985, we offer comprehensive Chartered Accountant (CA) services. Our range of services extends to GST compliance and returns, bookkeeping, accounting, audits, business registrations, payroll, TDS, tax litigation, NRI tax matters, and financial advisory services.
We understand the importance of compliance and offer a wide range of services focused on TDS. We follow a discipline of thorough documentation and compliance.
We offer a range of services for startups, small and large businesses, and professionalls as well as NRIs.
We appreciate your interest in our services and invite you to visit our website for more information on the services we offer.
Most Asked Questions
- What is TDS on the sale of goods?
This implies that the sale of certain goods by the buyer attracts tax deduction provisions under Section 194Q of the Income-tax Act, 1961. From 1st April, 2026, and onwards, this provision will be found in the Income-tax Act, 2025.
- What is the status of Section 206C(1H)?
From 1st April, 2025, onwards, this section will not apply.
- Will Section 194Q be available after 1st April, 2026?
The Income-tax Act, 2025, has re-ordered the chapter-wise and section-wise numbers of the Income-tax Act, 1961. Therefore, the provisions relating to purchase of goods by the buyer will be found in Section 393(1) of the Income-tax Act, 2025, and will be similar to the provisions of the Income-tax Act, 1961, which have been repealed with effect from 1st April, 2026.
- What documents should a buyer retain to discharge his TDS obligation?
The buyer is required to retain the vendor’s PAN details, purchase invoices, purchase ledger, payment details, TDS details, challans, and returns. Further details may be needed depending upon the nature of the transaction.
- Will a chartered accountant assist in preparing the TDS return?
Yes. Preparation of TDS returns and other related obligations requires understanding of the relevant provisions of the Income-tax Act, 1961, and maintaining related records.
Conclusion
Recognizing the implications of TDS on the sale of goods is important for businesses that are in the position of buying goods from suppliers regularly. Under the erstwhile Income-tax Act, TDS was mandated from the buyer as per Section 194Q. Concurrently, Section 206C(1H) mandated TCS from the seller. The mandate for TCS was suspended with effect from 1st April, 2025.
Affected businesses should note the change in the Income-tax Act, 2025, from 1st April, 2026, and adopt the changes made in the Act for their transactions.
It is essential for businesses to review their situation with a qualified chartered accountant.
Disclaimer: This blog post is not legal or financial advice. For specific advice, contact your legal/financial advisor.
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