Sec 194Q vs Sec 206C(1H) — who withholds, who collects on the same invoice
From FY 2025-26 only Sec 194Q applies to B2B purchases of goods: the Finance Act 2025 omitted Sec 206C(1H) (TCS by the seller) from 1 April 2025. A buyer whose turnover exceeded ₹10 crore last year deducts 0.1% TDS on purchases above ₹50 lakh from one seller in the year. For earlier years, the Sec 206C(1H) proviso decided which applied.
The headline (post FA 2025)
Finance Act 2025 omitted Sec 206C(1H) with effect from 1-April-2025. From FY 2025-26 onwards, only Sec 194Q operates on goods transactions above ₹50L. Buyer is the deductor. Seller does not deduct or collect anything related to this provision. The pre-FA 2025 dual-section confusion is now history — but the legacy reconciliations for FY 2024-25 still need to be handled correctly.
The two sections — for the FY 2024-25 records you're still closing
| Sec 194Q (Buyer's TDS) | Sec 206C(1H) (Seller's TCS) — repealed 1-Apr-2025 | |
|---|---|---|
| Who deducts/collects | Buyer | Seller |
| Trigger turnover (previous FY) | Buyer turnover > ₹10 Cr | Seller turnover > ₹10 Cr |
| Threshold per counterparty | Purchases > ₹50L in FY | Sales receipts > ₹50L in FY |
| Rate | 0.1% on amount above ₹50L | 0.1% on amount above ₹50L |
| No PAN rate | 5% | 1% |
| Effective from | 1-Jul-2021 | 1-Oct-2020 |
| Status FY 25-26 | In force | REPEALED |
How the priority worked before repeal (FY 2024-25 and earlier)
Both sections could apply to the same transaction. The proviso to Sec 206C(1H) said: "the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount."
Plain English: if Sec 194Q applies to the buyer, Sec 206C(1H) does NOT apply to the seller. The buyer's TDS wins. The seller stops collecting TCS as soon as buyer starts deducting.
So even before FA 2025, the dual-application overlap usually resolved into Sec 194Q winning. The complication: if the buyer was below ₹10 Cr turnover (so Sec 194Q didn't apply to them) but the seller was above ₹10 Cr — Sec 206C(1H) applied.
Going forward — FY 2025-26 simple rules
- Buyer with turnover > ₹10 Cr in preceding FY (FY 2024-25): apply Sec 194Q TDS @ 0.1% on goods purchased above ₹50L from any single seller in the FY.
- Seller of goods: no Sec 206C(1H) TCS anymore. Stop collecting.
- Buyer with turnover ≤ ₹10 Cr: no Sec 194Q obligation. Pay seller in full, no TDS.
Operationalising Sec 194Q in FY 2025-26
Step 1 — Establish buyer threshold
Compute aggregate turnover (sales + services + other) for FY 2024-25. If > ₹10 Cr, Sec 194Q is "live" for FY 2025-26 transactions. The test is on the buyer's previous-FY turnover, not current.
Step 2 — Track aggregate purchases per seller
For each goods supplier, accumulate FY purchases. Once the running total crosses ₹50L (any time during the FY), start deducting 0.1% on the amount above ₹50L. So if seller A is at ₹48L and you receive a ₹5L invoice, deduct 0.1% on ₹3L (the portion above ₹50L) — ₹300.
Step 3 — Deduct at time of credit or payment, whichever is earlier
Standard TDS rule. Booking the invoice in your books triggers the deduction. Don't wait for payment.
Step 4 — Deposit by 7th of next month, file Form 26Q quarterly
Standard challan 281 → Form 26Q (or Form 27Q for non-residents). Issue Form 16A to the seller within 15 days of Form 26Q due date.
Step 5 — Confirm PAN status
If seller's PAN is inoperative (PAN-Aadhaar not linked), Sec 206AA bumps the rate to 5%. Verify PAN-Aadhaar linkage on the IT portal before April payments.
What Sec 194Q does NOT apply to
- Purchase of goods from a seller whose income is wholly exempt under Sec 10 (e.g. a charitable trust, certain co-operatives).
- Goods imported into India (TCS at source under Sec 206C(1F) or customs handles it).
- Purchase of services (only goods are in scope; Sec 194J/Sec 194C etc. apply to services).
- Purchase of immovable property (Sec 194-IA applies).
- Purchase of motor vehicles > ₹10L (Sec 206C(1F) TCS by seller still applies).
- Transactions where another TDS section already applies (Sec 194O for e-commerce, etc.).
What about the FY 2024-25 closure year?
For FY 2024-25 — the last year Sec 206C(1H) was alive — the priority rules still need clean disclosure:
- Buyer's GSTR-1 / IT books should show Sec 194Q TDS where applicable.
- Seller's books should show Sec 206C(1H) TCS collected only from buyers who weren't subject to Sec 194Q (i.e. buyers with turnover ≤ ₹10 Cr in preceding FY).
- If the same transaction has TDS by buyer AND TCS by seller, the seller's TCS is technically excess collection and must be refunded to the buyer, or claimed back through the seller's TCS return amendment.
The unintended FA 2025 win for sellers
The Sec 206C(1H) repeal is a quiet working-capital gift to sellers. Previously, a seller above ₹10 Cr had to:
- Identify buyers without Sec 194Q obligation.
- Collect 0.1% TCS at receipt.
- File Form 27EQ quarterly.
- Issue Form 27D TCS certificate.
From FY 25-26, all of that is gone. No software cost, no compliance overhead, no customer-facing reconciliation pain. The flip side: the buyer is now the sole withholder, so seller-side AR teams should expect 0.1% short-receipts and confirm Form 26AS reflects the Sec 194Q credit.
Common pitfalls in FY 25-26
- Seller continues to charge Sec 206C(1H). The provision is repealed. Continuing to collect it is unauthorised. Buyer should refuse the TCS charge.
- Buyer ignores Sec 194Q. Even though Sec 206C(1H) is gone, Sec 194Q stays. Any buyer with turnover > ₹10 Cr in FY 2024-25 must continue to deduct.
- Threshold reset on 1-Apr. The ₹50L threshold per seller resets every FY. Don't carry forward last year's running total.
- Including GST in the threshold. Sec 194Q operates on consideration paid. Practical clarification (Circular 13/2021): GST charged separately on invoice is excluded; if invoice doesn't separately disclose GST, the full amount is in scope.
- Forgetting the ₹50L is per-seller, not per-invoice. Aggregate from 1-April. Multiple small invoices crossing ₹50L cumulatively trigger Sec 194Q on the marginal amount.
Bottom line
FA 2025 simplified what was always a confusing pair. From 1-April-2025, only Sec 194Q is alive. Buyer with previous-FY turnover > ₹10 Cr deducts 0.1% on goods purchases from any seller above ₹50L cumulative for the FY. Seller does nothing related to Sec 206C(1H) anymore. For the legacy FY 2024-25 reconciliations, walk the priority rule one last time and clean up any duplicate withholdings before the seller's TCS return is finalised in May 2025.
Related
Ishaq Aqeel
Associate at Finclar. While GST is the core practice, the Sec 194Q / Sec 206C(1H) buyer-seller cross-tax often sits at the GST-direct tax intersection — coordinating with the buyer's TDS team and the seller's TCS team to avoid double withholding.