First identify whether the amount is buyer-side TDS under section 194Q or seller-side TCS under section 206C(1), then verify the transaction date, material, threshold calculation and section shown on the documents. Compare the deduction or collection certificate with the annual tax statement on TRACES. If tax was withheld but is missing or incorrect, ask the deductor in writing to deposit it and file a revised statement; the Income Tax Department assigns that correction to the deductor. Do not assume that every amount called “scrap TDS” is refundable directly to the seller: the remedy depends on the tax mechanism, reporting period and records.
Start with the transaction, not the word “scrap”
A commercial invoice may describe material as scrap, but that label does not by itself establish the applicable tax rule. Gather the invoice, contract or purchase order, weight and delivery records, ledger entry, payment evidence, tax certificate and all correspondence. Then record four facts:
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- Whether you are the buyer or the seller.
- Whether the amount was deducted from your payment or collected from the other party.
- The section printed on the certificate, invoice or accounting entry.
- The date on which credit or payment occurred.
The material classification matters particularly for section 206C(1). Its statutory meaning is narrower than everyday usage: waste and scrap must arise from manufacture or mechanical working of materials and be definitely unusable as such because of breakage, cutting up, wear or another reason. Usable surplus goods are not automatically statutory scrap.
Buyer TDS and seller TCS are different mechanisms
| Question | Section 194Q | Section 206C(1) |
|---|---|---|
| Who acts? | The buyer deducts tax from a qualifying purchase from a resident seller. | The seller collects tax on specified goods, including material that meets the statutory scrap definition. |
| What is it called? | Tax deducted at source (TDS). | Tax collected at source (TCS). |
| Main trigger | Aggregate purchases from the resident seller exceed ₹50 lakh in the year and the buyer satisfies the preceding-year turnover condition. | A sale of specified goods; the material must fit the statutory description rather than merely being labelled scrap. |
| Rate stated in the official material summarized here | 0.1% on the purchase amount above ₹50 lakh, when the conditions apply. | Not stated here; check the current statutory schedule and the period-specific instructions. |
| Typical evidence | Buyer’s TDS certificate, Form 26Q reporting and the seller’s tax statement credit. | Seller’s collection records and the buyer’s corresponding tax-credit information. |
Section 194Q is not a universal scrap-sale rule. It applies because of the buyer’s status and qualifying purchase, not simply because an invoice uses the word scrap. Conversely, section 206C(1) is a seller-side collection rule. Confusing TCS with TDS can lead you to demand the wrong certificate or ask the wrong party to file a correction.
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Do not use the former general sale-of-goods rule in section 206C(1H) as a catch-all explanation. The Income Tax Department states that section 206C(1H) stopped applying from 1 April 2025.
How to test whether a section 194Q rate is wrong
1. Check the buyer’s preceding-year turnover
The buyer-side rule described by the Department applies where the buyer’s business sales, gross receipts or turnover exceeded ₹10 crore in the immediately preceding financial year, subject to statutory exceptions. Obtain the buyer’s confirmation or supporting accounting information where necessary; a seller cannot determine this condition from the invoice alone.
2. Recalculate the ₹50 lakh threshold
For a qualifying purchase from a resident seller, the published basic rule is 0.1% of the amount exceeding ₹50 lakh during the relevant year. It is not 0.1% of the entire annual purchase total. Reconcile all invoices and credit notes with that seller, identify the date the cumulative amount crossed ₹50 lakh, and compare the resulting base with the amount reported.
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3. Confirm credit-or-payment timing
Under the Department’s section 194Q guidance, deduction occurs at the earlier of credit to the seller’s account or payment. This can change the amount base:
- If tax is deducted when an invoice is credited and GST or another listed levy is separately shown under the contract, those separately stated components are excluded from the base.
- If payment occurs before credit and tax is deducted at that point, the guidance says the whole payment is used because future invoice components are not yet identifiable.
Match the deduction date to the ledger and bank statement. A calculation using the right percentage on the wrong base is still a mismatch.
4. Verify PAN and statutory details
Check the PAN used, the seller’s residency status, the section code and the tax year. The Department’s current guidance describes higher-rate consequences where PAN is not furnished, but the applicable rate and form must be confirmed for the relevant period. Do not replace a missing-PAN rule with the ordinary 0.1% calculation.
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What to do when TDS was deducted but not deposited or reported
A deduction from sale proceeds does not create tax credit automatically. The amount may be absent because the buyer did not deposit it, did not file the statement, used an incorrect PAN or challan, or reported a wrong amount or date.
- Preserve the evidence. Keep the invoice, agreement, delivery or weight record, ledger, bank statement, certificate and emails in one file. Note the amount actually withheld and the date it was withheld.
- Check the annual statement. View or download the applicable annual tax statement through TRACES. For an old-Act period, compare Form 26AS; for Tax Year 2026–27 onward, use the annual-statement route identified by the Department for that period. Compare deductor name, your PAN, section, amount, tax year, challan and deduction date.
- Reconcile line by line. Mark each invoice as matching, missing, duplicated or incorrectly attributed. Separate a genuinely excessive deduction from a deduction that is correct but not reflected.
- Write to the buyer or deductor. State the invoice and payment references, amount withheld, amount appearing in the statement and the exact correction requested. Ask for proof of deposit and the corrected statement and certificate.
- Require a revised statement where needed. The Department’s mismatch FAQ says the deductor must file a revised TDS return for a TDS mismatch. A seller generally cannot amend the buyer’s filed TDS statement unilaterally.
- Use the portal mismatch facility if unresolved. Sign in to the e-Filing portal and use its tax-credit mismatch service if available for your return. That service compares credit claimed in the return with Form 26AS, but the Department still directs the taxpayer to obtain a correction from the deductor.
For section 194Q, the Department says tax deducted is paid through Challan ITNS 281 within seven days after the end of the deduction month. March deductions are due by 30 April of the next financial year. It also describes quarterly Form 26Q filing and Form 16A issuance within 15 days from the statement due date. These are the section 194Q instructions; confirm the currently applicable form and deadline when a different provision or the new Act governs.
If a buyer deducted tax and failed to deposit it, the Department may treat that person as in default. Its section 194Q guidance describes interest at 1.5% per month or part of a month from deduction until deposit, along with possible penalties or prosecution. Those consequences apply to the responsible deductor; they are not an automatic payment or refund to the seller.
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If the amount looks higher than it should
Do not call a deduction “excess” until the provision, period and base have been checked. Common explanations include:
- The transaction was treated under a different section than the one you assumed.
- The buyer crossed the threshold earlier in the year than your invoice review indicated.
- The material was classified as statutory scrap or as ordinary goods differently by the parties.
- PAN information was missing or incorrect.
- Tax was deducted on a payment made before the invoice was credited, producing a different base.
- The amount is correct but the return or statement contains a reporting error.
Send the deductor a written reconciliation and request correction rather than netting the disputed amount against a future invoice. The official material does not establish one universal direct seller-side refund route for every alleged excess scrap deduction. A chartered accountant or Indian tax adviser should review the certificate, challan, annual statement, contract and tax period before you seek a refund, adjust books or file a return claim.
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How tax-credit mismatch affects your return
Form 26AS is an annual tax-credit statement containing TDS, TCS and other tax information. The Department states that credit is restricted to the amount reflected there. Therefore, if a buyer withheld money but did not report it, claiming the unreported amount does not guarantee credit merely because your bank statement shows a lower receipt.
Keep the withholding entry in your reconciliation, but distinguish these cases:
| What your records show | What the annual statement shows | Immediate action |
|---|---|---|
| No tax withheld | No credit | No TDS claim; investigate only if the contract or payment record proves a deduction. |
| Tax withheld | No credit | Ask the deductor to deposit and file or correct its statement; retain proof of the request. |
| Tax withheld | Credit for a different PAN, amount or date | Request a revised statement and certificate with the exact correction. |
| Tax withheld | Correct credit | Reconcile it to the certificate and claim only the reflected amount for the applicable return. |
Which law and forms apply after 1 April 2026?
The transition date is material. Events through 31 March 2026 use the Income-tax Act, 1961 framework. Events from 1 April 2026 use the Income-tax Act, 2025 framework and its associated forms. The Department’s compliance FAQ says correction statements for an old-period transaction can still be filed after the changeover and should continue under the old framework.
When contacting a deductor or using the portal, state the exact financial year or tax year and transaction date. Do not mix an old-period Form 26Q or Form 16A instruction with a new-Act form simply because the correction is being filed later. Check the Department’s current instructions for the period shown on your certificate.
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A precise request is more likely to produce a usable correction than a general demand for a refund. Include the following:
Subject: TDS reconciliation and correction — [invoice/reference] — [tax year]
Invoice and payment reference: [details]
Amount paid: [amount]
Amount withheld as TDS: [amount]
Section shown on certificate or ledger: [section]
Amount appearing in annual tax statement: [amount or “not appearing”]
Please confirm deposit details and file the required correction or revised TDS statement. Please send the corrected certificate and statement acknowledgement once filed.Attach copies rather than originals, identify the PAN and tax year, and keep delivery evidence for the request. If the buyer disputes the section or material classification, ask it to identify the statutory basis and provide its calculation.
When to escalate
Professional advice is appropriate when the amount is material, the parties disagree about whether the material is statutory scrap, the buyer claims section 194Q does not apply, PAN details are wrong, or the transaction crosses the 31 March 2026/1 April 2026 framework boundary. Give the adviser the certificate, annual statement, challan information, payment dates, contract and material description. Those documents determine whether the issue is a wrong rate, a missing deposit, a reporting mismatch or a different tax mechanism altogether.
Quick Recap
Practical checklist
- Identify buyer versus seller and TDS versus TCS.
- Confirm that the material meets the statutory definition if section 206C(1) is claimed.
- Record the transaction date and applicable Act period.
- For 194Q, test buyer turnover above ₹10 crore, resident-seller purchases above ₹50 lakh, the excess-only base and earlier-of-credit-or-payment timing.
- Check separately stated GST or listed levies when deduction occurs on invoice credit.
- Compare the certificate, ledger, bank entry and TRACES annual statement.
- Ask the deductor to deposit tax and file a revised statement when credit is missing or wrong.
- Do not promise a direct refund or automatic credit until the documents and reporting period have been reviewed.
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