Businesses making substantial purchases of goods may need to deduct TDS from payments to their suppliers. TDS Code 1031 is the relevant code for this category under the new Income Tax Act framework.
TDS Code 1031 is particularly important for businesses that have significant annual turnover and purchase goods from resident suppliers. The provision has specific conditions relating to the buyer’s turnover and the value of purchases from a particular seller.
In this guide, we explain what TDS Code 1031 means, how it relates to the earlier Section 194Q, who is required to deduct TDS, and how the ₹50 lakh purchase threshold works.
Quick Summary of TDS Code 1031
| Particulars | Details |
|---|---|
| TDS Code | 1031 |
| Earlier Section | 194Q |
| Nature Of Payment | Purchase Of Goods |
| TDS Rate | 0.1% |
| Purchase Threshold | ₹50,00,000 |
| Buyer’s Previous Year Turnover | More Than ₹10 Crore |
| Nature Of Seller | Resident Seller |
What is TDS Code 1031?
TDS Code 1031 applies to specified payments made by a buyer for the purchase of goods where the prescribed conditions are satisfied.
The provision is the successor to the TDS mechanism that was contained in Section 194Q of the earlier Income Tax Act.
Unlike many other TDS provisions that apply to specific types of services or payments, TDS Code 1031 focuses on purchases of goods.
The provision is relevant primarily for businesses with substantial turnover that purchase goods from resident suppliers.
TDS Code 1031 and Section 194Q
Businesses that are familiar with the earlier Income Tax Act may know this provision as Section 194Q.
The new code structure changes the identification of the provision, but businesses still need to understand the underlying compliance requirements.
| New TDS Code | Earlier Section | Nature Of Payment |
|---|---|---|
| 1031 | 194Q | Purchase Of Goods |
Therefore, searches such as:
- TDS Code 1031
- New code for Section 194Q
- TDS on purchase of goods
- Section 194Q TDS
are generally referring to the same underlying category of transaction.
Who Is Required to Deduct TDS Under Code 1031?
TDS Code 1031 does not apply to every person purchasing goods.
One of the key conditions relates to the turnover of the buyer.
The buyer’s total sales, gross receipts or turnover from business or profession must have exceeded ₹10 crore during the immediately preceding financial year.
Therefore, a business cannot determine applicability merely by looking at the value of its current-year purchases.
It must first consider its turnover in the immediately preceding financial year.
The ₹10 Crore Turnover Condition
The buyer-side turnover condition is an important part of TDS Code 1031.
For example:
Company A
- Turnover in previous financial year: ₹8 crore
- Purchases during current financial year: ₹80 lakh
Even though purchases exceed ₹50 lakh, the buyer does not satisfy the ₹10 crore previous-year turnover condition.
Company B
- Turnover in previous financial year: ₹15 crore
- Purchases during current financial year: ₹80 lakh
Company B satisfies the buyer turnover condition. The next step is to examine whether the purchases from the particular resident seller exceed the prescribed threshold.
This distinction is important because ₹50 lakh is not the only condition for applicability.
What is the ₹50 Lakh Threshold Under TDS Code 1031?
Once the buyer satisfies the prescribed turnover condition, the next important test is the value of purchases from a particular resident seller during the financial year.
TDS applies when the aggregate value of purchases from that seller exceeds ₹50 lakh during the financial year.
The threshold therefore needs to be monitored seller-wise.
| Condition | Requirement |
|---|---|
| Buyer’s previous financial year turnover | More than ₹10 crore |
| Seller | Resident |
| Aggregate purchases from seller | More than ₹50 lakh |
| TDS Rate | 0.1% |
This means a business should not simply compare its total purchases across all suppliers with ₹50 lakh.
It needs to monitor purchases from individual resident sellers.
TDS Rate Under Code 1031
The applicable TDS rate under TDS Code 1031 is 0.1% when the prescribed conditions are satisfied.
The rate is relatively low compared with several other TDS provisions, but the compliance impact can be significant for businesses making large-volume purchases.
For example, if the amount subject to TDS is ₹20 lakh:
TDS = ₹20,00,000 × 0.1% = ₹2,000
The business therefore needs to deduct ₹2,000 from the amount payable to the seller, subject to the applicable provisions.
When Does TDS Actually Apply?
The easiest way to understand TDS Code 1031 is to consider the conditions together.
A business generally needs to examine:
- Whether its turnover exceeded ₹10 crore in the immediately preceding financial year.
- Whether the supplier is a resident seller.
- Whether aggregate purchases from that seller exceed ₹50 lakh during the current financial year.
- The amount on which TDS is required to be deducted.
This prevents one of the most common mistakes: looking at only the ₹50 lakh threshold without checking the buyer’s previous-year turnover.
Example: Buyer Turnover Is Below ₹10 Crore
Suppose:
- Previous year turnover: ₹9 crore
- Purchases from Supplier A: ₹75 lakh
Although purchases from Supplier A exceed ₹50 lakh, the buyer’s previous-year turnover is below ₹10 crore.
Therefore, the buyer does not satisfy the basic turnover condition for TDS Code 1031.
Example: Buyer Turnover Exceeds ₹10 Crore
Suppose:
- Previous year turnover: ₹15 crore
- Supplier A is a resident seller
- Purchases from Supplier A during the year: ₹65 lakh
The buyer satisfies the ₹10 crore turnover condition and purchases from the resident seller exceed ₹50 lakh.
The amount above the prescribed ₹50 lakh threshold is:
₹65 lakh − ₹50 lakh = ₹15 lakh
TDS at 0.1%:
₹15 lakh × 0.1% = ₹1,500
Therefore, TDS of ₹1,500 would apply to the amount exceeding the threshold, subject to the applicable provisions.
Why TDS Code 1031 Matters for Businesses
TDS Code 1031 is particularly relevant for businesses with significant procurement volumes.
Businesses in sectors such as:
- Manufacturing
- Wholesale Trading
- Retail
- Distribution
- Construction
- Import And Domestic Trading
may make substantial purchases from multiple suppliers.
As a result, manually monitoring the ₹50 lakh threshold across suppliers can become difficult.
Businesses should therefore maintain proper vendor-wise purchase records and monitor cumulative purchases throughout the financial year.
TDS Under 194Q: How the Purchase Threshold Works
Businesses familiar with the earlier Income Tax Act may still search for TDS under 194Q when looking for information about TDS on purchases.
The underlying concept continues under TDS Code 1031, which applies to specified purchases of goods when the prescribed conditions are met.
The most important point is that the ₹50 lakh threshold is considered with reference to purchases from a particular seller, rather than simply looking at the buyer’s total purchases from all suppliers.
Example: Purchases From Multiple Suppliers
Suppose a company had a turnover of ₹15 crore in the immediately preceding financial year.
During the current financial year, it makes the following purchases:
| Supplier | Purchases During The Year |
|---|---|
| Supplier A | ₹65 lakh |
| Supplier B | ₹45 lakh |
| Supplier C | ₹80 lakh |
| Supplier D | ₹30 lakh |
For Supplier A, purchases exceed ₹50 lakh. Therefore, the amount above the prescribed threshold needs to be considered for TDS.
For Supplier B and Supplier D, the purchases have not crossed ₹50 lakh.
Supplier C has also crossed the threshold, so the company needs to consider TDS for the amount exceeding ₹50 lakh.
This is why vendor-wise purchase tracking is important when applying TDS Code 1031.
Is TDS Deducted on the Entire Purchase Amount?
This is an important practical question.
Where the ₹50 lakh threshold applies, TDS is generally calculated on the amount exceeding ₹50 lakh, rather than on the entire year’s purchases from the seller.
For example:
- Total purchases from Supplier A: ₹70 lakh
- Threshold: ₹50 lakh
- Amount exceeding threshold: ₹20 lakh
- TDS rate: 0.1%
TDS:
₹20,00,000 × 0.1% = ₹2,000
Therefore, the TDS amount would be ₹2,000, subject to the applicable provisions.
What Happens When the Threshold Is Crossed During the Year?
Businesses should monitor cumulative purchases throughout the financial year.
For example:
| Month | Purchase From Supplier | Cumulative Purchase |
|---|---|---|
| April | ₹15 lakh | ₹15 lakh |
| June | ₹12 lakh | ₹27 lakh |
| August | ₹10 lakh | ₹37 lakh |
| October | ₹8 lakh | ₹45 lakh |
| December | ₹10 lakh | ₹55 lakh |
The ₹50 lakh threshold is crossed in December.
The business therefore needs to consider the amount exceeding ₹50 lakh when determining TDS under Code 1031.
This is one reason why TDS compliance should be integrated with accounts payable and vendor management rather than checked only at year-end.
Does TDS Code 1031 Apply to All Purchases?
No.
The provision is specifically concerned with the purchase of goods and is subject to prescribed conditions.
Businesses should therefore distinguish between:
- Purchase of goods
- Purchase of services
- Professional fees
- Contractor payments
- Rent
- Other payments covered by separate TDS provisions
A payment should not automatically be classified under Code 1031 merely because it is recorded as a purchase in the accounting system.
The underlying nature of the transaction needs to be examined.
TDS Code 1031 and Purchase of Services
TDS Code 1031 is intended for the purchase of goods, not ordinary purchases of services.
For example, a company purchasing:
- Raw materials
- Finished goods
- Trading inventory
- Machinery or other goods
may need to examine Code 1031.
However, payments for services such as:
- Professional consultancy
- Legal services
- Technical services
- Contract work
may fall under other TDS provisions depending on the nature of the payment.
Correct classification is therefore important before selecting the TDS code.
TDS Code 1031 vs TCS on Sale of Goods
There has historically been confusion between TDS under Section 194Q and TCS on sale of goods.
The earlier provisions required businesses to consider both mechanisms in certain circumstances, which created significant confusion for buyers and sellers.
For the current framework, businesses should not simply rely on old 194Q/206C(1H) explanations found online. The applicable provisions and effective dates need to be considered when determining the current compliance position.
For this reason, businesses updating their accounting or ERP systems should ensure that their TDS configuration reflects the current law rather than carrying forward an old TCS process automatically.
Common Mistakes Under TDS Code 1031
Businesses can face compliance problems when they:
- Check only total purchases instead of supplier-wise purchases
- Ignore the buyer’s previous-year turnover
- Apply the ₹50 lakh threshold without checking other conditions
- Deduct TDS on the wrong amount
- Miss the date on which the threshold is crossed
- Classify purchases of services as purchases of goods
- Use outdated Section 194Q or TCS guidance
- Fail to reconcile TDS with vendor ledgers
A proper vendor-wise tracking mechanism can significantly reduce these errors.
How Businesses Can Monitor TDS Code 1031
For businesses with a large number of suppliers, manual monitoring can become difficult.
A practical process is to:
1. Identify Applicable Buyers
Determine which entities satisfy the previous-year turnover condition.
2. Identify Resident Suppliers
Review the nature and residential status of relevant suppliers.
3. Track Vendor-Wise Purchases
Monitor cumulative purchases from each relevant seller during the financial year.
4. Identify Threshold Crossings
Flag suppliers where purchases approach or cross ₹50 lakh.
5. Calculate TDS
Apply the prescribed rate to the amount subject to TDS.
6. Reconcile Regularly
Reconcile TDS deducted with purchase ledgers, vendor accounts and TDS returns.
TDS Return Reporting Under Code 1031
TDS deducted under Code 1031 needs to be correctly reported in the applicable TDS return.
Businesses should ensure that:
- The correct TDS code is selected.
- The seller’s PAN is correctly reported.
- The amount subject to TDS is accurately recorded.
- TDS deducted agrees with the books.
- TDS deposits are made within the prescribed timelines.
- TDS returns are filed correctly.
Errors in reporting can result in reconciliation issues for both the buyer and seller.
Frequently Asked Questions
What is TDS Code 1031?
TDS Code 1031 is the new TDS code for specified purchases of goods and corresponds to the earlier Section 194Q framework.
What is the TDS rate under Code 1031?
The applicable TDS rate is generally 0.1%, subject to the prescribed conditions.
What is the ₹50 lakh threshold under TDS Code 1031?
The ₹50 lakh threshold relates to aggregate purchases of goods from a particular resident seller during the financial year, subject to the other conditions of the provision.
Is the ₹50 lakh threshold applicable to total purchases from all suppliers?
No. The threshold is considered with reference to purchases from the relevant seller rather than simply adding purchases from every supplier.
What is the buyer turnover condition for TDS Code 1031?
The buyer’s sales, gross receipts or turnover from business or profession must have exceeded ₹10 crore in the immediately preceding financial year, subject to the applicable provisions.
What is TDS under 194Q?
TDS under 194Q refers to the earlier provision dealing with TDS on purchases of goods. Under the new TDS code structure, the corresponding code is 1031.
Does TDS Code 1031 apply to services?
No. Code 1031 is intended for specified purchases of goods. Payments for services need to be examined under the TDS provision applicable to the nature of that service.
Final Thoughts
TDS Code 1031 is particularly important for businesses with substantial turnover and significant procurement volumes.
The key numbers to remember are:
- ₹10 crore: Previous-year turnover condition for the buyer
- ₹50 lakh: Aggregate purchase threshold from the relevant seller
- 0.1%: Applicable TDS rate
However, simply remembering these three numbers is not enough.
Businesses need to identify the relevant buyers, monitor purchases supplier-wise, determine when the threshold is crossed, and ensure that TDS is correctly deducted and reported.
For businesses that make frequent purchases from multiple suppliers, integrating TDS monitoring with the accounting or ERP system can make compliance considerably easier.
Need Help With TDS Compliance?
If your business has significant purchase volumes and needs help with:
- TDS Code 1031 applicability
- Vendor-wise threshold tracking
- TDS calculation
- TDS return filing
- Accounting or ERP configuration
our team can help review the process and set up a practical TDS compliance workflow.