Section 194Q in the Income-tax Act, 2025: Now Serial 8(ii) of Section 393(1), and the Two Tests Behind It

Somewhere in a mid-sized manufacturing company, the accounts team is looking at a vendor ledger that has just crossed ₹50 lakh for the year. They know what to do. Every year since 2021 they have deducted 0.1% under section 194Q.

This year, section 194Q doesn't exist. The obligation does. It has moved to section 393(1) of the Income-tax Act, 2025, Table serial 8(ii), and it no longer has a name of its own, only a line in a table. That is why "194Q in the new Income-tax Act" is one of the most searched questions of the year.

Where it lives now

Section 393(1) has one Table of payments to residents. Serial 8(ii) reads: "Any sum exceeding fifty lakh rupees for purchase of any goods". The payer is "any person, being a buyer", and the rate is 0.1%.

Note 1 to the Table adds the two rules that shape it:

• Only the excess. Tax is deducted on the sum exceeding ₹50 lakh, not on the whole amount.
• No double counting. Serial 8(ii) does not apply to a transaction on which tax is deductible or collectible under any other provision of the Act.

Who is a buyer

The threshold isn't the only gate. Section 402(6) defines who counts as a "buyer" for serial 8(ii): a person whose total sales, gross receipts or turnover from business exceeded ₹10 crore in the tax year immediately before the year of purchase. The Central Government can exclude persons by notification.

So there are two tests, and both have to be met:

• Is the buyer big enough? More than ₹10 crore of turnover last year.
• Is this seller big enough for them? More than ₹50 lakh of purchases from that seller this year.

One seller, one PAN

The ₹50 lakh is counted per seller, not per ledger. A supplier who appears in three ledgers, perhaps one for each branch or one for raw material and one for packing, is still one seller with one PAN. Counting ledger by ledger is the most common way the threshold is missed.

When, how much, and without a PAN

• When. Section 393(1) requires deduction at the time the amount is credited to the seller's account or paid, whichever is earlier.
• Without a PAN. Under section 397(2), if the seller doesn't furnish a valid PAN, the rate for serial 8(ii) is 5%, not 0.1%.
• Reporting. The deduction goes into the quarterly statement in Form 140, the successor to Form 26Q.

What happened to TCS on sale of goods

Under the 1961 Act, a seller could be required to collect tax on large sales under section 206C(1H), which sat uneasily beside 194Q. The Finance Act, 2025 withdrew it from 1 April 2025, a year before the new Act, and the TCS Table in section 394 of the 2025 Act has no row for it. The purchase of goods is dealt with on the buyer's side only, by TDS under serial 8(ii).

Check a seller

Before the next quarter

• Confirm last year's turnover crossed ₹10 crore before setting up the deduction.
• Group purchases by the seller's PAN across every ledger and branch, and track the running total against ₹50 lakh.
• Deduct only on the excess, at the earlier of credit and payment.
• Collect PANs early, because 5% instead of 0.1% is fifty times the deduction.
• Check that no other provision already applies to the same transaction.

Where this comes from

The law is section 393(1) (Table: Sl. No. 8(ii) and Note 1), section 397(2) and section 402(6) of the Income-tax Act, 2025 as amended by the Finance Act, 2026, and the quarterly statement is under rule 219 of the Income-tax Rules, 2026. It applies from tax year 2026-27. Purchases in 2025-26 and earlier were governed by section 194Q of the 1961 Act.