194Q TDS on yarn purchases and grey sales — when to deduct.

A weaving unit meets 194Q from two sides. When buying yarn — if your unit is large, you may have to deduct TDS from the supplier's payment. When selling grey — if the trader buying from you is large, they deduct TDS and you receive a little less. The rule is the same; you only need to know which side you are on.

From 1 April 2026 the Income-tax Act, 2025 is in force and this rule now sits in the table of section 393(1). The rate and limits are unchanged, and the market still calls it "194Q" — so does this guide.

Who deducts?

• The buyer, if their business turnover in the previous year was above ₹10 crore. It is last financial year's turnover, not this year's.
• The seller is resident in India.
• TDS applies only once purchases from one seller this year (from 1 April) cross ₹50 lakh — and only on the part above ₹50 lakh.
• If another TDS section already applies (e.g. 194C on job work), 194Q does not.

So a small unit (turnover up to ₹10 crore) does not deduct 194Q on yarn. But if the trader buying your grey is large, they will deduct on your invoices.

Rate and the amount it applies to

• Under CBDT Circular 13/2021, when GST is shown separately on the invoice, TDS is on the value excluding GST. On an advance the GST part can't be identified, so TDS is on the full advance.
• TDS is rounded to the rupee and deposited by the 7th of the next month (March's by 30 April).
• If the seller holds a lower / nil deduction certificate, use that rate.

Check the invoice's GST and total in the GST calculator first, then apply TDS to the taxable value only.

On a grey sale — when the party deducts

If you sold more than ₹50 lakh of grey to one large trader this year, they deduct 0.1% on the part above the limit before paying you. That money isn't lost — it shows against your PAN in 26AS / AIS and counts as a credit in your income tax. So record it against the invoice in the receipt; otherwise ₹500–1,000 stays "outstanding" in the party's account.

What happened to 206AB and TCS?

• 206AB (double rate for sellers who don't file returns) was removed from 1 April 2025 by the Finance Act 2025. The higher rate now applies only when there is no PAN or it is inoperative.
• 206C(1H) TCS (the seller's 0.1% TCS on sales above ₹50 lakh) also stopped applying from 1 April 2025. Earlier, if the buyer deducted 194Q the seller didn't collect TCS; now only the buyer's 194Q remains on sales of goods.

Common mistakes

• Deducting on the whole invoice. On the invoice that crosses the limit, deduct only on the part above ₹50 lakh.
• Including GST. If GST is shown separately, deduct on the taxable value only.
• Looking at this year's turnover. The test is last year's. If you crossed ₹10 crore last year, watch from 1 April.
• Treating all firms as one. Turnover and the ₹50 lakh limit are counted per PAN (per firm).
• 194Q on job work. A weaving job bill is a service — 194C applies, not 194Q. See GST on grey fabric and job work.

How Loomiro helps

In Settings → TDS, enter the firm's TAN and switch on 194Q (only if last year's turnover was above ₹10 crore). In Purchase & TDS, as you enter a yarn bill Loomiro adds up this year's earlier purchases from that supplier and works out TDS only on the part above ₹50 lakh, without GST — with a note saying why. No PAN brings a 5% warning, and a party can carry its lower / nil certificate rate. You can switch TDS off, force it on or change the amount. In a receipt, TDS the party deducted (194Q on goods bills, 194C on job bills) is set against the invoice. The TDS report shows "we deducted" month by month with deposit due dates and a 26Q CSV, and "party deducted" with a CSV for matching 26AS.

This is general information, not tax or legal advice. Confirm the turnover test, limits, rates and the new Act's section with your CA.

Source: Income-tax Act 1961 section 194Q and Income-tax Act 2025 section 393(1); CBDT Circular 13/2021 (30-06-2021); Finance Act 2025 (206AB omitted, 206C(1H) off from 1-4-2025).