I have tried using png and dds file which appear to have transparency but do not have transparency when I render image. any quick tips. the model I am using is very low poly, could this also be the issue?
Nothing to add, except that png does support transparency - 100% true.
Either give example .blend file or say as a minimum what do you use: Cycles or Blender Internal render engine.
Low poly does not impact materials applied. Even one face of the default plane can be textured and transparency used on it.
Simply adding an image texture with transparency won’t necessarily make your model transparent. You’ll generally need to activate transparency in some way. How exactly this is done depends on whether you’re in BI or Cycles, and what type of material exactly you’re trying to make.