The bill is ₹1,00,000. You are sending ₹98,000. The other ₹2,000 is TDS under section 194C, and it has to reach the government by the seventh of next month with a certificate to follow. That is one payment with two destinations, and the second one is what people forget.
In short
- Where
- Procurement → Purchase bills → open the bill
- First
- Mark as open — a draft will not take a payment
- Then
- Record a payment
- Lands in
- The bill, the bank account, and Books → TDS register
The thing that catches everybody once
A bill converted from a purchase order arrives as a Draft. Press Record a payment on it and you are told the bill is a draft and cannot take a payment yet.
That is not a bug being polite about itself. A draft is a document you are still writing — the vendor’s invoice number might be missing, a line might be wrong. It is not yet something you owe, so it is not yet in your payables and not yet payable. Mark as open is the moment you accept it as a real liability, and everything else follows from there.
Step by step
Open the bill and press Mark as open
Check the vendor’s invoice number and date are on it first — that number is what your input credit is matched against, and correcting it after a payment is more work than before.
Record a payment
The button is only there once the bill is open and something is outstanding. On a fully paid bill it is gone, because there is nothing left to pay.
Enter what is actually leaving the bank
Amount, date, mode and the bank account it goes from. Put the net figure — ₹98,000 in the example — not the gross. The deduction is recorded separately because it goes somewhere else.
Check the section and the rate
Both come from the vendor record, where they were set when the vendor was approved. Confirm the section fits this particular payment: a printer doing job work is 194C, a consultant giving professional advice is 194J, and the two carry different rates.
Save
The bill moves to Partially paid or Paid, the balance updates, and the deduction lands in Books → TDS register with the section, the rate and the vendor’s PAN against it.
The 194C numbers, since this is where people guess
| Question | Answer |
|---|---|
| Rate — individual or HUF contractor | 1% |
| Rate — any other resident contractor | 2% |
| No PAN on file | 20% under section 206AA |
| Single-payment threshold | ₹30,000 |
| Annual aggregate threshold, same contractor | ₹1,00,000 |
Below both thresholds, no deduction is required. Cross either one and you deduct on the payment that crosses it and on every covered payment after — not just on the excess.
The no-PAN rate is the expensive one. A vendor who has not given you a PAN is deducted at 20 per cent rather than 1 or 2. That is a conversation to have when you approve them, which is why the approval step will not go through without a PAN on file. More on that here.
The other deadline nobody mentions
If your vendor is a registered micro or small enterprise, section 43B(h) of the Income Tax Act — in force since 1 April 2024 — gives you 45 days to pay them where you have a written agreement, and 15 days where you do not. Miss it and the amount is disallowed as a deduction for that year and added back to your taxable income; you can only claim it in the year you actually pay.
It applies to micro and small manufacturers and service providers — not medium enterprises, and not traders. And your auditor is required to report the breach, so it is not the kind of thing that goes unnoticed. Record the MSME number on the vendor and the payment terms follow from it.
Common questions
What are the TDS thresholds under section 194C?
No deduction is required if a single payment does not exceed ₹30,000 and total payments to the same contractor in the financial year do not exceed ₹1,00,000. Once either limit is crossed, deduct on the payment that crosses it and on every covered payment after.
What rate applies under 194C?
One per cent where the contractor is an individual or a Hindu Undivided Family, and two per cent for any other resident contractor.
What happens if the vendor has no PAN?
Section 206AA requires deduction at the higher rate, which works out at 20 per cent for most contractor payments. Chase the PAN before you pay, not after.
Why will a draft bill not take a payment?
A draft is a document you are still writing, not yet a liability. Marking it open turns it into something owed and makes it payable.
Correct as of September 2026. Rates and thresholds change; check the current position before relying on the figures above for a filing.
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