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Indian auto-component manufacturers serve OEMs through a Tier 2-Tier 1-OEM chain on JIT/kanban delivery with short-pays, FOMP warranty back-charges of 1-3% of monthly billing, one-time tooling cost recovered over committed volume, PLI Auto incentive disbursements per ₹26,058 crore scheme, and Section 393(1)(a) contractor TDS on job-work — five overlapping reconciliation rails that no generic ERP module handles together.
Reconcile OEM customer at part number and programme level with kanban deliveries matched to short-pay debit notes, FOMP back-charges traced through Tier 1 debit notes to original Tier 2 invoices, tooling amortisation tracked against contractual volume cap per programme, PLI claim filed against value-add-audited incremental sales and reconciled to MoHI bank credit per quarter, Section 393(1)(a) code 1002 deduction on every job-work invoice with the related Section 143 dispatch challan tracked on its one-year return window.
Customer master keyed by OEM plant code and vehicle programme, kanban delivery schedule by part number, FOMP back-charge taxonomy with claim ID and Tier link, tooling-recovery ledger with cumulative-against-cap tracking per die, PLI eligible-sales calculation table by value-add tier, Section 393(1)(a) vendor rate matrix with code 1002 default, scrap TCS Section 394 code 1071 ledger for ferrous and non-ferrous waste.
A daily reconciled view per OEM customer showing dispatched kanban quantity to invoiced quantity to paid amount with short-pay variance coded by reason, FOMP exposure aged by claim ID against the Tier 1 running account, tooling recovery progress per programme against contractual cap, PLI claim status per quarter (filed, under-audit, sanctioned, credited), and the monthly Section 393 TDS challan tied to job-work payments by code 1002.
A Tier 1 auto-component supplier in Chennai closes April books and pulls the OEM ageing: of ₹38.4 crore billed to four large OEM customers in the month, ₹4.8 crore sat as short-pays at month-end — 12.5% of billing held against kanban variances, FOMP back-charges, tooling adjustments and a disputed PLI claim. The numbers are predictable for any automotive component manufacturing reconciliation India operation that runs OEM settlements on spreadsheets. The full stack covers five distinct rails and a tax overlay that interacts with each one.
Quick reference
| Item | Value |
|---|---|
| Parent scheme | PLI Auto (Production Linked Incentive for Automobile and Auto Components) |
| Scheme outlay | ₹26,058 crore over a five-year tenure |
| Sectoral regulator/body | MoHI (Ministry of Heavy Industries) + ACMA (industry body) |
| Eligibility anchors | Incremental sales above base year, value-add threshold per category |
| Incentive band | Typically 8% to 18% of eligible incremental sales (value-add tiered) |
| GST rate (auto components) | 28% on most components; 18% on selected sub-categories; 5% on EV components |
| Key TDS codes | 1002 (Section 393(1)(a) contractor), 1012 (Section 393(1)(k) purchase), 1071 (Section 394 scrap) |
The OEM-Tier 1-Tier 2 settlement structure
An auto component flows up a three-layer chain: a Tier 2 supplier (typically forging, casting, plastic moulding, fasteners, rubber parts) ships to a Tier 1 (typically a system supplier — braking, transmission, lighting, seating, exhaust); the Tier 1 sub-assembles and supplies the OEM (Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Hyundai, Toyota Kirloskar, Bajaj Auto, TVS, Hero MotoCorp). Each layer has its own commercial agreement, payment terms, quality regime and back-charge mechanism — and a Tier 2’s reconciliation against an OEM’s behaviour is always indirect, mediated by Tier 1 debit notes.
Typical commercial pattern at a Tier 1 with ₹400 crore annual sales and 12 OEM customers: 60-day payment terms from OEM, 90-day pay-cycle to Tier 2 sub-suppliers, GST 28% on most components, kanban-based delivery on rolling 4-week schedules with weekly call-off, and a quarterly tooling-amortisation reconciliation per vehicle programme.
The five reconciliation rails
Rail 1 — JIT/kanban delivery to invoice to payment
Indian OEMs run kanban delivery against electronic delivery schedules — the supplier dispatches in 2-hour or 4-hour windows to feed line-side stocks at the OEM plant. Reconciliation must tie the kanban dispatched quantity (logged at the supplier gate), the OEM goods-received-on-line confirmation, the invoice raised (typically billed weekly or monthly in arrears against the cumulative dispatched quantity), and the payment received against the invoice. Short-pays arise when the OEM rejects a partial quantity at line — the rejected part comes back on the next return-trip truck and the OEM short-pays that quantity on the invoice with a rejection slip number. Reconciliation must log each short-pay by rejection slip ID, age unresolved short-pays, and either dispute or accept-and-issue-credit-note within the GST credit-note window.
See PO-GRN-invoice three-way matching in India for the upstream procurement equivalent — a Tier 1 is itself a buyer from its Tier 2 base and runs the three-way match on the inbound side.
Rail 2 — FOMP / warranty back-charge reconciliation
FOMP (Field-Originated Material Performance) is the warranty regime where an OEM traces a field warranty failure (a part that failed at a dealer or customer) back to the Tier 1, which traces it down to the Tier 2 whose component caused the failure. The OEM raises a FOMP debit note on the Tier 1 — typically between 1% and 3% of monthly billing — citing the warranty claim ID, vehicle VIN range, and technical service deduction analysis. The Tier 1 in turn raises a back-charge on the Tier 2. Reconciliation has to maintain a running FOMP account per OEM-Tier 1 pair, age each claim, log the recovery from the sub-tier supplier, and ensure the GST treatment on the back-charge is consistent (most back-charges are issued as commercial credit notes with no GST impact, but some OEMs structure them as service fees with GST applicability).
Rail 3 — Tooling amortisation
A vehicle programme starts with a tooling charge — the OEM pays the supplier for the dies, fixtures and gauges required to produce the part. Two commercial structures are common: (a) the OEM pays the tooling cost upfront as a one-time line on the first invoice, with a contractual commitment that the supplier produces a defined cumulative volume against that tool over the programme life; (b) the supplier carries the tooling cost on its balance sheet and recovers a per-part amortisation amount on every shipped piece. Reconciliation under structure (b) tracks cumulative parts shipped against the contractual cap — if shipments exceed the cap the supplier owes the over-recovery back to the OEM; if shipments fall short, the unrecovered balance has to be either negotiated for extension or written off at programme exit.
Rail 4 — PLI Auto incentive reconciliation
The PLI Auto scheme has a ₹26,058 crore total outlay over a five-year tenure, structured around incremental sales above a defined base year, with the incentive percentage banded by value-add criteria — higher value-add (deeper localisation, advanced automotive technology, EV components) earns a higher band, typically up to 18% of eligible sales; standard components earn lower bands. The reconciliation chain runs: actual sales by month → audited eligible sales (after PLI audit closes for the quarter) → claim filed with MoHI’s nominated implementation agency → sanction letter → bank credit. Each step can introduce variance — the audit may disallow specific SKUs as non-eligible, the claim band may differ from the supplier’s assertion, or the bank credit may lag the sanction by 30-90 days. A reconciliation control logs the PLI claim status quarterly and ties to the bank credit when it arrives.
For the related Section 393(1)(k) reconciliation on raw-material purchases inside the PLI eligibility envelope, see Section 393(1)(k) purchase-of-goods TDS for manufacturers.
Rail 5 — Tax reconciliation overlay
Section 393(1)(a), code 1002 — contractor TDS on every job-work payment (heat treatment, plating, machining, assembly outsourcing), at 1%/2% with thresholds ₹30,000 per transaction and ₹1 lakh aggregate per year. See Section 393 TDS new Income Tax Act reconciliation and TDS payment codes 1001-1092 India for the full code map.
Section 393(1)(k), code 1012 — purchase-of-goods TDS at 0.1% above ₹50 lakh aggregate per vendor PAN per year, applicable to a Tier 1 with turnover above ₹10 crore.
Section 394, code 1071 — TCS on scrap (turning scrap, off-cut, ferrous and non-ferrous waste, fines, mill scale) at 1% on sale value, collected from the scrap buyer.
Cross-era note: invoices and 26AS data raised under the previous Act (before 1 April 2026) will continue to carry legacy section references (194C for code 1002, 194Q for code 1012, 206C(1) for code 1071) — reconciliation against historical Form 26AS data must keep the legacy section cross-reference live for at least one full tax-year cycle.
Worked example — Tier 1 with ₹400 crore annual sales
A Tier 1 supplier with 12 OEM customers, ₹400 crore annual revenue, 28% GST on output, three plants and 180 active part numbers in production:
- Monthly billing run: ₹33.3 crore average
- Kanban dispatches per month: ~14,400 line-side deliveries across the 12 OEMs
- Expected short-pay variance band: 1.5% to 3.5% of monthly billing — ₹50 lakh to ₹1.17 crore aged at any point
- FOMP running provision: 4% of trailing 12-month revenue — ₹16 crore on the balance sheet
- Tooling amortisation ledger: 60+ active dies, each with cumulative-vs-cap tracker
- PLI claim cycle: quarterly, with average disbursement lag of 4-5 months from quarter close
- Section 393(1)(a) monthly TDS challan: typically ₹8-12 lakh from job-work, transport and AMC vendors
- Section 394 scrap TCS: ₹2-4 lakh monthly collected, deposited quarterly
The structured close ties every line to a reason code: matched-to-payment, short-pay-rejection-quality, short-pay-rejection-quantity, FOMP-debit, tooling-credit-monthly, PLI-pending, TDS-deducted, TCS-collected. Without it the close is a 10-12 day spreadsheet exercise; with it the AP/AR ageing closes inside three working days.
ACMA standardisation framework
ACMA — the Automotive Component Manufacturers Association of India — publishes standardisation guidance covering supplier rating systems, quality manuals, and commercial term templates used across the Indian Tier 1 base. For the current framework see the Automotive Component Manufacturers Association of India (ACMA). Reconciliation systems at Tier 1s typically encode the ACMA-aligned supplier rating into the vendor master so that on-time-in-full (OTIF) and quality scores flow into payment-release decisions automatically.
What automated reconciliation changes
Manual auto-component reconciliation across the five rails plus the tax overlay is a 10-12 day month-end exercise at a multi-OEM Tier 1, and rail-4 PLI variances typically do not surface until the next claim cycle. Purpose-built reconciliation software India treats each rail as a structured variance stream and surfaces only the lines that fail to match. TransactIG carries 24+ industry presets, including a configuration that handles OEM kanban short-pays, FOMP back-charge running accounts, tooling-amortisation caps, PLI claim tracking, and the Section 393/394 deduction map. Customer outcomes include match-rate improvement from 51% to 88%, and AP/AR exception rates moving into the sub-15% band post-implementation. Build is two-to-four weeks on AWS Mumbai (ISO 27001:2022). For the headline three-way match rail at the inbound procurement side see three-way matching software India.