Planning to buy machinery, equipment, or other high-value capital assets for your business?

Here’s a tax rule you shouldn’t overlook: TDS under Section 194Q of the Income Tax Act, 1961.

Even if you're not buying these goods for resale, you may still be required to deduct TDS.

Let’s break it down.

What is Section 194Q?

Introduced in the Finance Act 2021, Section 194Q requires buyers to deduct TDS when purchasing goods from a resident seller, if certain conditions are met.

Key Points:

• Applies to: Buyers with a turnover of over ₹10 crore in the preceding financial year
• TDS Rate: 0.1%
• Threshold: Total purchases from a single seller exceed ₹50 lakhs in a financial year
• Effective From: 1st July 2021
• Goods Covered: All movable goods, including capital goods like machinery or computers

Does 194Q Apply to Capital Goods Too?

Yes.

Even if the goods are not meant for resale, TDS still applies if:

1. You qualify as a “buyer” under Section 194Q, and
2. Your purchases from the single seller exceed ₹50 lakhs in a financial year Capital goods are not excluded. The purpose—whether for trade or internal use—doesn’t affect the applicability of TDS.

Example: How TDS Works on Capital Goods

Scenario:

ABC Pvt Ltd had a turnover of ₹12 crore in FY 2023–24.

In FY 2024–25, it purchases machinery worth ₹75 lakhs from XYZ Engineering Pvt Ltd (a resident seller).

ABC Pvt Ltd must deduct and deposit ₹2,500 as TDS.

When Should You Deduct TDS?

Deduct TDS whichever is earlier:

• When making the payment, or
• When booking the purchase in the books

Even if the asset is capitalized and not expensed, TDS is still applicable.

Consequences of Non-Compliance

• Interest: 1% per month on late deduction
• Penalty: ₹200 per day under Section 234E for late filing
• Disallowance: 30% of the expense may be disallowed under Section 40(a)(ia)

Quick TDS Checklist for Capital Goods Purchase

Condition	Requirement
Turnover > ₹10 Cr in previous FY?	Yes
Purchase from a resident seller?	Yes
Total value from seller > ₹50 lakhs?	Yes
Goods include capital goods?	Yes
TDS required?	Yes, at 0.1%

Common Mistakes to Avoid

• Ignoring 194Q just because it's a non-trade purchase
• Assuming TDS doesn’t apply when the item is capitalized
• Assuming TDS is not needed if the vendor charges GST - GST is excluded for TDS if separately mentioned
• Deducting TDS only at year-end — deduct at time of payment or booking:

In Short:

Capital goods are not exempt from TDS under Section 194Q. If you're buying high-value assets and meet the criteria, ensure TDS compliance to avoid penalties and disallowances.

Need help with your TDS compliance?

Reach out to https://tax360.asncuniverse.com/ or explore Tax360 for simple, accurate TDS support.