Section 194Q vs 206C(1H): Who Deducts, Who Collects, and Who Pays Neither

If you’ve ever had two emails on the same transaction - one from your vendor asking for a TCS declaration and one from your buyer asking for a TDS exemption - you know this problem. Section 194Q and 206C(1H) both target the same ₹50 lakh purchase threshold, and the Indian legislature decided to leave it to taxpayers to figure out which one fires first.

The short version

• Section 194Q - the buyer deducts TDS at 0.1% on purchases above ₹50 lakh from any single seller in the year. Applies when the buyer’s turnover exceeds ₹10 crore in the previous year.
• Section 206C(1H) - the seller collects TCS at 0.1% on sales above ₹50 lakh to any single buyer in the year. Applies when the seller’s turnover exceeds ₹10 crore in the previous year.

Both sections kick in at the same transaction volume for the same parties. The law resolves the tie with an explicit priority rule: if 194Q is applicable to the buyer, 206C(1H) is not required from the seller. The buyer’s TDS wins.

When each one fires

Buyer’s turnover > ₹10 cr?	Seller’s turnover > ₹10 cr?	Applicable section
Yes	Yes	194Q (buyer deducts, seller skips TCS)
Yes	No	194Q (buyer deducts)
No	Yes	206C(1H) (seller collects)
No	No	Neither

The declaration dance

Because the seller has no way to know the buyer’s turnover, India’s standard practice has become: the buyer sends a 194Q declaration to the seller at the start of each financial year stating that they will deduct TDS. The seller then doesn’t collect TCS.

If the declaration is missing, many sellers play safe and collect TCS anyway - which can lead to double taxation until refunded. Issue the 194Q declaration in April to avoid the mess entirely.

Timing and threshold quirks

• The ₹50 lakh threshold is per seller per financial year - not per invoice, not per month.
• TDS/TCS applies only on the amount above ₹50 lakh, not on the full transaction.
• Purchase of goods only. Services are covered under other sections (194J, 194C, etc.).
• For 194Q, deduction happens at payment or credit to the seller’s account, whichever is earlier.

What automation is worth here

The accruing-threshold tracking is where teams burn time. OneFinOps tracks every PO, GRN, and vendor payment across the year, flags when a vendor crosses ₹40 lakh (the warning zone), and auto-generates the 194Q deduction entry when the threshold is breached. No more late-March surprises.