Two provisions look at the same transaction from opposite ends. Section 194Q makes a large buyer deduct tax when buying goods. Section 206C(1H) makes a large seller collect tax when selling them. When both parties are large, both sections appear to apply — and the law resolves it with a priority rule that a great many businesses have never read.
The two tests
| 194Q — buyer deducts | 206C(1H) — seller collects | |
|---|---|---|
| Who is tested | Buyer turnover above ₹10 crore in the preceding year | Seller turnover above ₹10 crore in the preceding year |
| Transaction test | Purchases from one seller above ₹50 lakh in the year | Receipts from one buyer above ₹50 lakh in the year |
| Rate | 0.1% on the excess over ₹50 lakh | 0.1% on the excess over ₹50 lakh |
| Trigger point | On credit or payment, whichever is earlier | On receipt of consideration |
The priority rule: where both could apply, 194Q wins and 206C(1H) steps back. If the buyer is deducting under 194Q, the seller must not also collect. Applying both blocks working capital on both sides for no reason.
How to operate it in practice
- Establish your own preceding-year turnover once, at the start of the year. It decides which side of the rule you are on for the whole year.
- For each counterparty, track cumulative value against the ₹50 lakh line — it is per party, not aggregate.
- Tell your counterparties in writing which section you are operating. A one-line declaration prevents the double deduction.
- Note the different trigger points: 194Q bites at credit or payment whichever is earlier, while 206C(1H) bites only on receipt. That difference matters at year end.
Because the rate is a tenth of a percent, the amounts feel trivial and the compliance does not. The cost of getting it wrong is almost never the tax — it is the reconciliation and the counterparty disputes.
Where it interacts with GST
These provisions sit in income tax, entirely separate from GST. But the base is the invoice value, and whether GST forms part of that base depends on which provision is operating and how the invoice is drawn — worth settling with your counterparty in writing rather than assuming.
If you are already reconciling purchases against GSTR-2B each month, extend the same working to track the ₹50 lakh counterparty thresholds. Our monthly close checklist sets out that routine.
Where we come in
We set these thresholds up as a tracked schedule rather than a year-end scramble, and issue the counterparty declarations that stop double deduction. Part of TDS return filing and bookkeeping.
This article is general information, not professional advice. Limits, rates and dates change by notification — confirm the position for your own year before acting on it.