Section 194Q

Section 194Q — the law in short

What the courts have decided on section 194Q, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Vijaya Agro Traders v ITO High CourtHelps taxpayerNo later treatment found
  The faceless unit has disallowed my purchases for not deducting under s.194Q and has said nothing at all about the Board's circular I quoted in my reply. Is that enough to get the order set aside?
  Yes. The Karnataka High Court set aside an order under s.143(3) read with s.144B, made in a s.194Q scrutiny, on the single ground that CBDT Circular No. 13/2021 had not been considered or appreciated by the assessing unit, and remitted the matter for fresh consideration in the light of that circular. Guidelines issued under s.194Q(3) are issued with the approval of the Central Government and the officer is not free to pass over them in silence.
• Bhandari Bros v ITO, Bundi ITATHelps taxpayer
  Tax was deducted in my PAN under s.194Q on the whole mandi turnover, but I am a kachha arahtiya and I only offer my commission to tax. CPC has cut my TDS credit down in proportion. Can I still claim the whole deduction?
  Yes, on this order. A commission agent in the Bundi grain mandi declared commission receipts of Rs 2,94,975 and claimed TDS of Rs 2,37,479, of which Rs 74,072 had been deducted by purchasers under s.194Q on sale proceeds that belonged to the farmers; CPC allowed Rs 10,037 under s.143(1)(a) and the Commissioner (Appeals) upheld the withholding of the s.194Q component. The Jaipur SMC Bench held that once an amount has been deducted from the assessee's income and paid into the Government treasury against his PAN, credit cannot be refused on the ground that the deduction ought to have been made in somebody else's hands, and found no merit in the Commissioner (Appeals)'s reliance on s.199 read with rule 37BA(2). Note what this is not: the Tribunal did not decide any question about the scope or correct application of s.194Q, and expressly proceeded on the footing that the deduction may have been made wrongly.
• Mohammad Yunus v ITO, Ward-1 & TPS, Kalaburagi ITATHelps taxpayerNo later treatment found
  The Assessing Officer has disallowed 30 per cent of my purchases under s.40(a)(ia) for not deducting s.194Q TDS, but the seller had already collected TCS under s.206C(1H) and it shows in my Form 26AS. Does that answer the disallowance?
  Yes, in principle. The Tribunal held that where the seller has already collected tax at source under s.206C(1H) on the same transaction, the Board's instructions on s.194Q are clear that no deduction under s.194Q is required, and restored the matter to the Assessing Officer to verify the Form 26AS entries. The concession comes from para 4.9.5(v) of CBDT Circular No. 13/2021 and is available only for the years in which s.206C(1H) was in force — in practice AY 2022-23 to AY 2025-26.
• Statutory position — s.206AB and s.206CCA omitted, and s.206C(1H) disapplied, from 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  Do I still have to run the compliance check and deduct at the higher non-filer rate, and does my client still have to collect TCS on his sales of goods?
  No to both, for anything on or after 1 April 2025. Section 206AB and section 206CCA were omitted by the Finance Act 2025 with effect from 1 April 2025 and no longer exist. Section 206C(1H) has not been omitted from the statute book, but a third proviso inserted by the Finance Act 2025 provides that nothing contained in that sub-section shall apply from 1 April 2025, and the department's own guidance states that the provisions of s.206C(1H) are not applicable from that date and that s.194Q applies to the sale of goods.
• Statutory position — s.194-O: the e-commerce operator's rate fell to 0.1 per cent on 1 October 2024 CBDT Circulars & InstructionsCuts both waysNo later treatment found
  What rate does an e-commerce operator deduct now, when is a small seller outside the section, and does the Board's guidance bind me?
  0.1 per cent of the gross amount of the sale or services, for anything on or after 1 October 2024; one per cent before that. No deduction is required where the e-commerce participant is an individual or HUF whose gross sales or services through the platform in the previous year do not exceed five lakh rupees and who has furnished PAN or Aadhaar to the operator. Guidelines issued by the Board under s.194-O(4) bind the income-tax authorities and the e-commerce operator alike.
• Statutory position — s.194C: one per cent for an individual or HUF and two per cent for everyone else, the thirty thousand and one lakh thresholds, and the material-bought-from-a-third-party carve-out that takes a contract outside "work" CBDT Circulars & InstructionsCuts both ways
  I pay a fabricator to make parts to my drawings and I pay lorry owners to move my goods. Do I deduct under section 194C, at what rate, and at what figure does the obligation start — is it thirty thousand rupees or one lakh?
  Both figures are live and they do different jobs. Section 194C(5) says no deduction is to be made where the single sum credited or paid does not exceed thirty thousand rupees, and its proviso says that once the aggregate of such sums in the financial year exceeds one lakh rupees you must deduct under the section anyway. So a single bill of Rs 35,000 is caught on its own, and a run of Rs 12,000 bills is caught the moment the year's total passes Rs 1,00,000. The rate is one per cent where the payee is an individual or a Hindu undivided family and two per cent in every other case. Whether the fabrication is "work" at all depends on whose material is used: manufacturing to your specification out of material bought from you (or from an associate of yours) is "work"; the same job done out of material the fabricator bought from anyone else is expressly excluded, and that exclusion is the line between section 194C and a contract for sale. All of this is the 1961 Act, which the CBDT's own transition FAQ says stands repealed on 1 April 2026: for a credit or payment on or after that date the corresponding provision is section 393(1) of the Income-tax Act, 2025, which carries the same rates and the same two figures.
• Statutory position — s.197: the Assessing Officer may certify a lower rate, or nil, for a listed section, but only on the payee's application and only for a period of the previous year — the 1961 Act position, for deductions up to 31 March 2026 CBDT Circulars & InstructionsCuts both ways
  My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
  Section 197(1) lets the payee apply to the Assessing Officer for a certificate that the payer may deduct at a lower rate, or not at all. It is not open-ended: it works only for the sections named in it, and the Assessing Officer must be satisfied that “the total income of the recipient justifies” the lower rate. The list is sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195 — 194LBA was added by Act No. 8 of 2023 with effect from 1 April 2023 and 194Q by Act No. 15 of 2024 with effect from 1 October 2024. Section 197(2) then binds the payer: once a certificate is given, he deducts at the certified rate, or nothing, until the Assessing Officer cancels it. Section 197(2A) is the rule-making power, and the rules made under it are rule 28 (application in Form No. 13, filed electronically), rule 28AA (how the rate is worked out and how long the certificate lasts) and rule 28AB (a no-deduction certificate for trusts and other section 139(4C) filers). Nothing in the section or the rules confers a power to backdate a certificate, and in substance it operates forward: rule 28AA(4) sends it to the named deductor, who cannot un-deduct months already past. From 1 April 2026 this machinery is gone — the Income-tax Act, 1961 was repealed by section 536 of the Income-tax Act, 2025 and the successor is section 395 of the 2025 Act, applied for in Form No. 128 under rule 213 of the Income-tax Rules, 2026, and from the same date section 395(6) lets that application go to a prescribed income-tax authority instead of the Assessing Officer.
• Statutory position — section 139AA(2) and rule 114AAA: what an inoperative PAN actually does, and the CBDT circulars that undo it CBDT Circulars & InstructionsCuts both ways
  CPC has raised a short-deduction demand on me because my payee's PAN was inoperative for want of Aadhaar linking. What exactly does an inoperative PAN do, and is there any Board relief?
  An inoperative PAN carries four consequences and only four, and rule 114AAA(3) lists them: no refund of tax is made, no interest is payable on that refund for the period, tax deductible under Chapter XVII-B is deducted at the higher rate under section 206AA, and tax collectible under Chapter XVII-BB is collected at the higher rate under section 206CC. The third and fourth of those fall on the DEDUCTOR or COLLECTOR, not on the person who failed to link, which is why the demand lands on someone who did nothing wrong. The Board has issued a sequence of circulars relieving the deductor where the PAN is made operative by a date, and the sequence — Circular No. 3/2023 dated 28 March 2023, Circular No. 6/2024 dated 23 April 2024 and Circular No. 9/2025 dated 21 July 2025 — is the first thing to check, before any argument on merits.
• Statutory position — section 206AA, sub-section (7) and rule 37BC: the twenty per cent rate, the five per cent provisos, and the non-resident's way out CBDT Circulars & InstructionsCuts both ways
  My non-resident payee has no PAN. Must I deduct at twenty per cent, and is there any prescribed alternative?
  Section 206AA(1) requires a deductee to furnish his permanent account number, failing which tax is deducted at the higher of the rate specified in the relevant provision, the rates in force, or twenty per cent — but two provisos substitute five per cent for twenty where the deduction is under section 194-O or section 194Q. Sub-section (7) disapplies the section altogether to a non-resident not being a company and to a foreign company in respect of interest on long-term bonds under section 194LC and any other payment subject to prescribed conditions, and rule 37BC prescribes those conditions. Under rule 37BC(1) the section does not apply to interest, royalty, fees for technical services, dividend and payments on transfer of any capital asset if the deductee furnishes the four items in sub-rule (2) to the deductor.
• CBDT Circular 13/2021 CBDT Circulars & InstructionsCuts both ways
  Our purchase attracts both 194Q and 206C(1H). Do we deduct as buyer or does the seller collect?
  The buyer deducts. Where both provisions are capable of applying to the same transaction, the buyer's obligation under s.194Q prevails and the seller need not collect under s.206C(1H); if the seller has already collected before the buyer deducts, the transaction is not taxed twice, both rates being 0.1%.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.