Heat 1 tablespoon of vegetable oil in a large skillet over medium heat.
Add 1 cup of chopped onions and cook, stirring until softened, about 5 minutes.
Stir in 2 teaspoons of red chile powder, 1 teaspoon of garam masala, 1 teaspoon of ground turmeric, 1 teaspoon of white sugar, and salt to taste.
Add 2 cups of cubed paneer and 1 tablespoon of tomato sauce to the skillet.
Cook and stir until flavors combine, about 3 to 5 minutes.
Spread 1 teaspoon of butter and 2 tablespoons of the paneer filling over 1 slice of bread.
Place the second slice of bread on top to form a sandwich.
Melt the remaining 1 teaspoon of butter in a large skillet over medium heat.
Add the sandwich to the skillet and cook until golden brown, about 1 minute per side.