The Tool Desk
Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →The buyer, not automatically the scrap seller, deducts TDS when the purchase falls under the goods-purchase withholding rule. For transactions governed by the Income-tax Act, 1961, that generally means a business buyer whose preceding financial-year turnover exceeded ₹10 crore, buying more than ₹50 lakh of goods from the same resident seller during the year. Deduction starts at the earlier of credit to the seller or payment, and applies only to the amount above the threshold. Transactions paid or credited from 1 April 2026 must instead be checked under the corresponding Income-tax Act, 2025 provision and its section 393 table reference.
At a glance: the buyer-side rule
Section 194Q of the Income-tax Act, 1961 is the provision normally relevant to a qualifying business that buys scrap or other goods from a resident seller. It is a buyer-side TDS obligation. The fact that “scrap” also appears in the tax-collection provisions does not, by itself, make every scrap purchaser deduct tax.
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| Question | Rule for sums governed by the 1961 Act |
|---|---|
| Who can be responsible? | A buyer carrying on business whose sales, gross receipts or turnover exceeded ₹10 crore in the immediately preceding financial year. |
| Whose purchases are measured? | Goods bought from each resident seller, counted on an aggregate seller-wise basis during the relevant year. |
| When is the threshold crossed? | When the value or aggregate value of purchases from that seller exceeds ₹50 lakh. |
| What is the TDS rate? | 0.1% of the sum exceeding ₹50 lakh. The Income Tax Department says surcharge and health and education cess do not increase this rate. |
| When must tax be deducted? | At the earlier of credit to the seller’s account or payment by any mode. |
| What kind of seller is covered? | The section 194Q rule described here concerns payment to a resident seller. |
These conditions are cumulative. A scrap purchase is not covered merely because the material is scrap, and a buyer does not become a deductor merely because its annual purchases are large. The buyer’s preceding-year turnover test and the seller-specific purchase test must both be satisfied.
What section 194Q actually says
The operative wording in section 194Q of the Income-tax Act, 1961 is:
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“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.”
The sentence explains three practical points. First, the obligation is attached to the person responsible for paying the seller. Second, the ₹50 lakh test is cumulative for that seller rather than a separate allowance for every invoice. Third, the tax base is only the excess over ₹50 lakh, not the entire year’s purchases.
How to determine whether your business is the deductor
1. Check the buyer’s preceding-year turnover
Use the buyer’s sales, gross receipts or turnover for the immediately preceding financial year. The relevant test is “exceeded ₹10 crore,” so an amount exactly equal to ₹10 crore does not meet the stated wording. Keep the calculation tied to the legal entity that is making the purchase and payment; do not substitute a group-wide figure unless the applicable law requires that treatment.
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2. Identify the seller and confirm residency
Section 194Q, as described in the Department’s purchase-of-goods guidance, applies to a resident seller. Confirm the seller’s tax residency and preserve the supporting details in your vendor master and transaction file. A non-resident payment requires a different withholding analysis and should not be forced into this rule.
3. Aggregate goods purchases seller by seller
Track the value of goods purchased from each resident seller throughout the financial year. The threshold is not a single limit for all scrap vendors combined. Separate ledgers for different legal sellers prevent one vendor’s transactions from being incorrectly combined with another’s, while common control or trading names should not obscure the actual contracting party.
4. Start withholding when the seller’s total crosses the limit
If the running total passes ₹50 lakh during the year, calculate withholding on the amount exceeding that limit. Do not apply 0.1% retrospectively to the first ₹50 lakh, and do not treat the limit as a per-invoice exemption.
When the deduction is triggered
Section 194Q uses an “earlier of” test. Deduct when the amount is credited to the seller’s account or when it is paid by any mode, whichever happens first. A credit to a suspense or similar account can therefore require careful review if it represents a credit to the seller under the applicable rules. Align the accounting entry, payment date and deduction date rather than waiting for the later event.
For a threshold crossed partway through the year, the first covered deduction is calculated on the portion above ₹50 lakh. For example, if qualifying purchases from one resident seller total ₹80 lakh and all other conditions are met, the excess is ₹30 lakh and 0.1% of that excess is ₹3,000. This is arithmetic based on the statutory threshold and rate, not an official assessment or ruling.
Scrap TCS is a separate seller obligation
Scrap is also listed in section 206C, which concerns tax collection at source (TCS). That is a different mechanism:
| Feature | Purchase TDS under section 194Q | Scrap TCS under section 206C |
|---|---|---|
| Responsible party | Qualifying buyer | Seller collecting tax from the buyer |
| Relevant transaction | Purchase of goods from a resident seller, subject to the buyer and threshold conditions | Sale of scrap within the specific section 206C category |
| Rate identified in Department material | 0.1% on the amount above the purchase threshold | 1% listed for scrap on the Department’s TCS Rates page |
| What the label means | Tax is deducted from the seller’s payment | Tax is collected by the seller from the buyer |
Do not use the scrap entry in section 206C as proof that the buyer must deduct TDS. Determine which party has the statutory responsibility and whether the transaction satisfies that provision’s conditions.
The 2025 change to broad sale-of-goods TCS
The Income Tax Department says section 206C(1H), the broad TCS rule for sales of goods, stopped applying from 1 April 2025. That change concerns subsection (1H). It does not erase the distinct scrap category in section 206C(1). The transaction date and the exact subsection therefore matter; describing all scrap TCS as discontinued is too broad.
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Which law applies to a 2026 payment?
The Department’s transition FAQ draws a date line based on when the sum is paid or credited:
| Payment or credit date | Legislation and filing reference |
|---|---|
| On or before 31 March 2026 | Apply the relevant withholding provisions of the Income-tax Act, 1961, including section 194Q where its conditions are met. |
| On or after 1 April 2026 | Apply the corresponding provisions of the Income-tax Act, 2025 and quote the applicable section 393 table item in the filing. |
The Department’s section 393 material includes a purchase-of-goods entry with a threshold above ₹50 lakh. The reviewed official material does not specifically map scrap purchases to a particular table-item number. Before filing for a post-1 April 2026 transaction, confirm the operative table item, rate and exceptions in the current Act, rules and filing instructions instead of assuming that section 194Q remains the correct reference.
Invoice and payment details that can change the result
Separately stated GST or other levies
The Department’s purchase-of-goods guidance describes an exclusion where GST or other levies are separately indicated, subject to the conditions stated in that guidance. Review how the tax, levy and goods value appear on the invoice and contract; a separate line by itself should not be treated as an automatic exclusion without checking the applicable wording.
E-commerce operators
Where an e-commerce operator is responsible for payment, its section 194-O obligation can take priority under the Department’s guidance. If the operator defaults, responsibility can shift to the buyer. Establish who contracts with the seller, who controls the payment and which party actually remits the amount before deciding that the buyer’s section 194Q process applies.
PAN is not furnished
The Department’s current material describes a higher rate under section 206AA when the seller does not furnish PAN. It also states that section 206AB was omitted from 1 April 2025. Because the applicable rate depends on the law governing the transaction date and the facts, verify the current provision before applying a number; do not automatically substitute the ordinary 0.1% rate.
Purchase returns and replacements
Official guidance allows tax deducted on a refunded purchase return to be adjusted against a later purchase from the same seller. Where the goods are replaced, the guidance says no adjustment is required. Keep the return, refund or replacement documentation linked to the original invoice so the treatment can be demonstrated.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.A practical compliance workflow
- Classify the transaction. Record whether the material is goods, identify the seller’s residency and note the payment or credit date.
- Test the buyer. Document the legal entity’s preceding-year sales, gross receipts or turnover and whether it exceeded the statutory limit.
- Build a seller-wise register. Aggregate purchases from each resident seller for the financial year, including invoices not yet paid where credit has occurred.
- Mark the crossing invoice. When the running total exceeds the threshold, calculate only the excess and apply the rate prescribed for the governing law.
- Apply the earlier-event date. Compare the credit and payment dates and deduct on the earlier one.
- Check overrides. Review e-commerce payment arrangements, separately stated GST or levies, missing PAN and any return or replacement before finalizing the deduction.
- Use the correct year’s filing reference. Use the 1961 Act reference for sums through 31 March 2026; for sums from 1 April 2026, verify and quote the applicable section 393 table item.
- Retain an audit trail. Keep the turnover test, residency evidence, seller-wise ledger, invoice, credit/payment proof, deduction computation and return documentation together.
Common mistakes and how to correct them
- Deducting on every scrap purchase: Scrap status alone is not the buyer-side trigger. Re-run the buyer turnover, resident-seller and seller-wise threshold tests.
- Applying the rate to the full annual value: Recalculate on the amount above the threshold only.
- Combining all vendors: Rebuild the register seller by seller.
- Confusing TCS with TDS: Identify whether the buyer or seller is named as the responsible party in the exact subsection.
- Using section 194Q for a post-transition filing without checking: Reconfirm the section 393 table item for sums paid or credited from 1 April 2026.
- Ignoring the credit date: Compare accounting credit and payment dates; the later date does not control when the earlier event has already occurred.
What records should support the deduction?
A defensible file should show the buyer’s preceding-year turnover calculation, the seller’s residency and PAN information, a seller-wise purchase register, invoices and contracts, the exact credit and payment dates, the threshold crossing calculation, and evidence of any GST or levy presentation. For returns or replacements, retain the credit note, refund or replacement record and the later transaction used for any adjustment.
The Income Tax Department describes its web material as information for access and directs users to verify the Acts, rules and notifications. Treat this explainer as a practical framework, not transaction-specific tax advice. Borderline cases—especially mixed-residency vendors, marketplace payments, missing PAN and post-1 April 2026 filings—should be checked against the operative law and current filing instructions.
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