TDS 194Q vs TCS 206C(1H) on Goods Purchases

Two provisions of the Income Tax Act — Section 194Q (TDS deducted by the buyer on purchase of goods) and Section 206C(1H) (TCS collected by the seller on sale of goods) — both target the same class of high-value goods transactions. With an identical tax rate of 0.1% and an identical threshold of ₹50 Lakhs per counterparty, it is natural for businesses to ask: who is responsible, and can both apply at the same time?

This guide answers those questions with precision — covering eligibility criteria, the statutory priority rule, a worked calculation example, and step-by-step instructions for recording the correct entry in Tally Prime.

Section 194Q: TDS Deducted by the Buyer

Section 194Q was inserted by the Finance Act 2021 and became effective from 1 July 2021. Under this provision, a buyer of goods is required to deduct tax at source at the time of credit or payment, whichever is earlier.

Eligibility conditions for the buyer to deduct TDS under 194Q:

• The buyer's Aggregate Annual Turnover (AATO) in the immediately preceding financial year exceeded ₹10 Crores.
• The total value of goods purchased from a single seller in the current financial year exceeds ₹50 Lakhs.
• The provision applies only to goods. Services are explicitly excluded; they are covered by other TDS sections (194C, 194J, etc.).

The TDS rate is 0.1% of the purchase value exceeding ₹50 Lakhs. If the seller does not furnish their PAN, the rate shoots up to 5%.

Section 206C(1H): TCS Collected by the Seller

Section 206C(1H), inserted by Finance Act 2020, requires a seller of goods to collect tax at source from the buyer at the time of receipt of sale consideration.

Eligibility conditions for the seller to collect TCS under 206C(1H):

• The seller's AATO in the immediately preceding financial year exceeded ₹10 Crores.
• The total sale consideration received from a single buyer exceeds ₹50 Lakhs in the current financial year.
• The buyer is NOT liable to deduct TDS under Section 194Q (the critical condition that creates the priority rule).

The TCS rate is also 0.1%. If the buyer does not furnish their PAN, the rate is 1% under Section 206CC.

Side-by-Side Comparison: 194Q vs 206C(1H)

The Priority Rule: 194Q Always Wins

The most important concept in this interplay is the priority clause built into the legislation. Section 206C(1H) explicitly states that it does not apply to a transaction if TDS has been deducted under Section 194Q.

The practical implication: if the buyer's turnover exceeds ₹10 Crores and their purchases from a seller exceed ₹50 Lakhs, the buyer deducts TDS. The seller — even if their own turnover exceeds ₹10 Crores — does NOT collect TCS. The seller simply receives payment net of TDS and can claim credit for that TDS when filing their Income Tax Return.

Decision Matrix: Who Acts?

Worked Calculation Example (₹55 Lakh Purchase)

Suppose Company A (buyer, AATO ₹15 Crores) has purchased goods worth ₹55 Lakhs from Supplier B (seller, AATO ₹12 Crores) in the financial year 2024-25.

Company A must deposit this ₹500 TDS to the government by the 7th of the following month and file Form 26Q quarterly. Supplier B will claim credit for this ₹500 as TDS reflected in their Form 26AS.

How to Record TDS 194Q in Tally Prime

Recording a 194Q purchase voucher in Tally Prime requires activating the TDS module and creating the correct nature of payment. Follow these steps:

1. Activate TDS in Tally Prime: Go to Gateway of Tally → F11 (Features) → Statutory & Taxation. Set Enable Tax Deducted at Source (TDS) to Yes.
2. Create TDS Nature of Payment: Navigate to Gateway of Tally → Create → TDS Nature of Payments. Set Section = 194Q, Rate = 0.1%, threshold = ₹50,00,000.
3. Create TDS Payable Ledger: Under Duties & Taxes, create a ledger named TDS 194Q Payable linked to the 194Q nature of payment.
4. Record Purchase Voucher (F9): In the purchase voucher, select the supplier ledger and the goods ledger. Press Alt+S or use the statutory section to apply TDS 194Q. Tally will auto-calculate the TDS amount once the cumulative purchase from this party crosses ₹50 Lakhs.
5. Verify the entry: The purchase voucher should show:

When you pay Supplier B via bank, Tally debits the Supplier B ledger for ₹4,99,500 and credits your bank account. The ₹500 TDS Payable entry is cleared when you make the government challan payment.

Handling TCS 206C(1H) from the Seller Side in Tally Prime

If you are the seller and your buyer is NOT eligible for 194Q TDS (i.e., the buyer's turnover is under ₹10 Crores), you must collect TCS at 0.1% under 206C(1H). In Tally Prime:

1. Activate TCS under F11 → Enable Tax Collected at Source (TCS).
2. Create a TCS Nature of Goods for Section 206C(1H) with rate 0.1% and threshold ₹50 Lakhs.
3. Create a ledger TCS 206C(1H) Payable under Duties & Taxes.
4. In the Sales Voucher (F8), apply the TCS on the amount exceeding ₹50 Lakhs. The customer's total payment will include the TCS amount, which you then remit to the government.

Common Mistakes to Avoid

• Counting GST in the ₹50 Lakh threshold: The ₹50 Lakh threshold is applied to the purchase value excluding GST. GST is not part of the consideration for TDS/TCS purposes under these sections.
• Applying TDS from the first rupee: TDS is not deducted on the entire ₹55 Lakhs. It applies only to the amount exceeding ₹50 Lakhs — i.e., on ₹5 Lakhs in the example above.
• Ignoring the FY reset: The ₹50 Lakh threshold resets every financial year (April 1). Cumulative purchases must be tracked per party, per financial year.
• Both TDS and TCS applied simultaneously: This is legally incorrect. If your company is eligible under 194Q, ensure you inform the seller so they stop collecting TCS in their invoice.

Automate Purchase Invoice Accounting with TrulyInvoice

Tracking cumulative purchase values per vendor, deducting the correct TDS, and reconciling TDS payable accounts manually is prone to costly errors. TrulyInvoice is a purchase invoice automation platform built for Indian businesses using Tally Prime.

TrulyInvoice uses OCR to extract line items, taxable values, and GST components from vendor invoice PDFs. It then formats ready-to-import F9 purchase vouchers with the correct TDS/TCS entries, reducing data entry time by over 80%. With TrulyInvoice:

• Every purchase voucher carries the correct 194Q TDS deduction once the ₹50 Lakh threshold is crossed for a vendor.
• Vendor-wise cumulative purchase totals are tracked automatically.
• TDS Payable accounts reconcile cleanly against TRACES quarterly returns.

TrulyInvoice is available for a flat subscription of plans starting at ₹399/month, keeping your purchase books compliant and audit-ready without dedicated bookkeeping staff.