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The buyer usually deducts the tax—not the scrap seller. Under section 194Q of the Income-tax Act, 1961, a buyer carrying on business must deduct TDS when the buyer’s sales, gross receipts or turnover exceeded ₹10 crore in the immediately preceding financial year and purchases from one resident seller exceed ₹50 lakh during the relevant year.
The rate is 0.1% of the amount above ₹50 lakh. Deduction is made at the earlier of crediting the seller’s account or making payment, whichever happens first. Scrap also appears in a separate seller-side TCS rule, so identifying the responsible party and the transaction date is essential.
The buyer-side rule in one view
- Who deducts: the qualifying buyer responsible for paying a resident seller for goods.
- Buyer threshold: the buyer’s business turnover, sales or gross receipts exceeded ₹10 crore in the immediately preceding financial year.
- Seller-wise purchase threshold: the value or aggregate value of goods purchased from that seller exceeds ₹50 lakh in the relevant previous year.
- Rate under section 194Q: 0.1% of the amount exceeding ₹50 lakh. The Income Tax Department’s guidance says surcharge and health and education cess do not increase this rate.
- Timing: deduct at credit to the seller’s account or payment by any mode, whichever is earlier.
This is a buyer-side TDS obligation. The fact that an invoice describes material as scrap does not, by itself, mean every buyer must deduct tax. The buyer’s turnover, the seller’s residence, the cumulative purchases and the date of credit or payment all have to be checked.
Which buyers have to deduct TDS?
The preceding-year turnover test
Section 194Q applies to a buyer carrying on business whose sales, gross receipts or turnover exceeded ₹10 crore in the immediately preceding financial year. For example, a business applying the rule to purchases made during a financial year must first establish whether its qualifying turnover crossed ₹10 crore in the prior financial year. A buyer below that test is not brought within section 194Q merely because its scrap purchases are large.
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Keep evidence for the turnover conclusion, such as the financial statements, return data or other accounting records used to make the determination. The test concerns the buyer, while the ₹50 lakh test described below concerns purchases from each seller.
The seller must generally be resident
The section 194Q wording addresses a sum paid to a resident seller. Confirm the seller’s residential status before applying the provision. A payment to a non-resident should not be treated as a section 194Q transaction without analysing the withholding rule that applies to that seller and payment.
The ₹50 lakh test is seller-specific
Aggregate the value of goods bought from the same seller during the relevant year. Do not combine unrelated sellers to reach the threshold. Once the cumulative value from one resident seller crosses ₹50 lakh, the statutory base is only the sum exceeding ₹50 lakh, not the entire purchase value.
The threshold is measured over the year, so a business needs a running seller-wise ledger. It should include invoices, debit notes, credit notes and other entries that affect the value of goods purchased, with the treatment of unusual transactions checked against the applicable guidance and contract terms.
When does the deduction start and how much is it?
Deduct when the threshold is crossed
Suppose qualifying purchases from one resident seller are below ₹50 lakh at the start of the year and cross that amount later. The deduction applies to the excess over ₹50 lakh. Section 194Q does not impose 0.1% on the first ₹50 lakh merely because a later invoice takes the annual total above the threshold.
Credit or payment, whichever is earlier
The trigger is the earlier of:
- crediting the sum to the seller’s account; or
- paying the sum by any mode.
This means a buyer should not wait until the end of the year to calculate or deduct the tax if the threshold has already been crossed and an earlier credit or payment event has occurred. “Credit” should be reviewed in the context of the accounting entry and the seller account used by the buyer; payment includes non-cash modes covered by the statutory wording.
Illustrative calculation
Assume a qualifying buyer purchases ₹80 lakh of goods from one resident seller during a year. The amount above the threshold is ₹30 lakh:
₹80,00,000 − ₹50,00,000 = ₹30,00,000
At 0.1%, the illustrative TDS is:
₹30,00,000 × 0.1% = ₹3,000
This is arithmetic based on the statutory threshold and rate, not an official assessment. Actual treatment depends on the buyer’s status, seller residency, transaction dates, documentation and any applicable exception.
Do not confuse purchase TDS with scrap TCS
Scrap is expressly listed in the seller-side TCS provisions of section 206C. That listing does not turn the seller’s collection obligation into a buyer’s deduction obligation.
| Question | Purchase TDS | Scrap TCS |
|---|---|---|
| Responsible party | Qualifying buyer | Seller collecting tax |
| Main provision discussed | Section 194Q of the 1961 Act | Scrap category in section 206C |
| Basic trigger | Buyer’s prior-year turnover above ₹10 crore and purchases from one resident seller above ₹50 lakh | Sale of scrap covered by the seller-side TCS category and its conditions |
| Rate stated in the Department’s TCS rates material | 0.1% on the amount above ₹50 lakh | 1% for the listed scrap category |
| Who deposits the tax | Buyer withholds and deposits TDS | Seller collects and deposits TCS |
The 1 April 2025 change to section 206C(1H)
The Income Tax Department states that section 206C(1H), the broad TCS rule for sales of goods, stopped applying from 1 April 2025. That change concerns subsection (1H). It should not be described as abolishing every scrap-related TCS rule, because scrap is separately listed in section 206C(1). For any transaction, identify the exact subsection and the date of sale, credit or payment rather than treating all scrap TCS as ended.
Which law applies to 2026 transactions?
The transition date matters because the Income-tax Act, 2025 applies to relevant sums from 1 April 2026. The Department’s transition FAQ distinguishes the governing law by the date of payment or credit.
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| Date of payment or credit | Governing framework | Practical reference |
|---|---|---|
| On or before 31 March 2026 | Income-tax Act, 1961 | Apply the applicable 1961 Act withholding provision, including section 194Q where its conditions are met. |
| On or after 1 April 2026 | Income-tax Act, 2025 | Use the corresponding withholding entry in the section 393 table and the current filing instructions. |
Do not automatically quote section 194Q after the transition
For sums paid or credited from 1 April 2026, the transition FAQ instructs deductors to quote the applicable section 393 table item. The official section 393 material includes a purchase-of-goods entry with a threshold above ₹50 lakh, but the specific excerpt available for this explanation does not establish a scrap-specific item number, rate or exception mapping. Before filing a current return, verify the operative table, rate, exceptions and reporting code for the transaction date.
In other words, the economic test may look familiar, but a post-transition filing should not assume that the old section number remains the correct reference.
Exceptions and operational points to check
E-commerce payment arrangements
The Department’s purchase-of-goods guidance says an e-commerce operator’s section 194-O obligation can take priority when the operator is responsible for making payment. If the operator defaults, responsibility can shift to the buyer. Review the platform agreement, settlement flow and the party that actually credits or pays the seller before deciding which withholding obligation applies.
GST and other levies shown separately
The purchase-of-goods guidance describes an exclusion where GST or another levy is separately indicated and the stated conditions are satisfied. This is not an automatic deduction from every invoice. Check how the levy is displayed in the invoice or contract and whether the statutory conditions for excluding it from the withholding base are met.
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The Department’s current material describes a higher rate under section 206AA where the seller does not furnish PAN. The applicable rate must be checked under the law governing the payment or credit date. Section 206AB was omitted with effect from 1 April 2025, so older checklists that still apply its higher-rate test should not be used without updating them.
Purchase returns and replacements
Official guidance states that TDS deducted on a refunded purchase return may be adjusted against a later purchase from the same seller. Where the goods are replaced, no adjustment is required. Because the result depends on the form of the return, replacement and accounting entries, retain the related credit notes, refund records and replacement documents.
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- Classify the transaction: confirm that the payment is for purchase of goods and record whether the material is scrap.
- Identify the seller: verify residency, PAN status and the exact legal entity receiving payment.
- Test buyer turnover: establish whether the buyer exceeded ₹10 crore in sales, gross receipts or turnover in the immediately preceding financial year.
- Track purchases seller by seller: maintain a cumulative ledger and identify the point at which purchases exceed ₹50 lakh.
- Determine the tax base: calculate only the amount above ₹50 lakh, applying any permitted treatment for separately stated GST or other levies.
- Check the trigger date: compare the credit and payment dates and use the earlier one.
- Check competing obligations: review section 194-O arrangements, seller-side TCS and any applicable PAN-related rate.
- Apply the correct law and reporting code: use the 1961 Act for sums through 31 March 2026 and the relevant section 393 table item for sums from 1 April 2026.
- Document exceptions and adjustments: preserve contracts, invoices, ledgers, return notes, replacement records and the basis for the rate used.
Common mistakes that create exposure
- Assuming the seller, rather than the buyer, deducts tax on a scrap purchase.
- Applying 0.1% to the entire annual purchase value instead of only the excess over ₹50 lakh.
- Pooling purchases from several sellers to cross the threshold.
- Waiting for year-end even though an earlier credit or payment has already triggered deduction.
- Treating the 1% scrap TCS listing as if it were section 194Q buyer-side TDS.
- Assuming the end of section 206C(1H) ended the separate scrap category under section 206C(1).
- Using section 194Q as the filing reference for a post-1 April 2026 payment without checking the section 393 table.
- Using an old section 206AB no-PAN checklist after its omission from 1 April 2025.
The statutory wording behind the rule
“Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.”
This quotation is from section 194Q of the Income-tax Act, 1961. It explains the buyer, resident seller, ₹50 lakh threshold, 0.1% rate and earlier-of-credit-or-payment timing. For a transaction on or after 1 April 2026, confirm the corresponding provision and reporting reference under the Income-tax Act, 2025 before filing.
Do these 3 things before closing this tab:
1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minuteThe Income Tax Department describes its online material as general information and directs users to verify the Acts, rules and notifications. A business should have its tax professional confirm a fact-specific position, especially where e-commerce settlement, returns, non-resident sellers, missing PAN or the 2026 transition is involved.
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