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Indian integrated steel manufacturers procure ₹400-800 crore of iron ore and ₹300-500 crore of coking coal annually across a small set of large suppliers (NMDC, OMC, MOIL, CIL subsidiaries, merchant miners, importers). Every supplier easily crosses both the ₹50 lakh per-PAN annual threshold for Section 393(1)(k) buyer-side TDS (payment code 1012, 0.1%) and the ₹10 crore prior-year turnover threshold that would otherwise trigger Section 394 seller-side TCS (payment code 1073, 0.1%) — driving the precedence rule (393(1)(k) wins); the same procurement also runs a 5% input GST creating inverted-duty against 18% finished steel output and a Section 54(3) refund opportunity, plus a 30% export duty on iron ore exports keyed to the IBM grade classification.
Build a per-vendor-PAN year-to-date purchase tracker on iron ore and coking coal in posting sequence; trigger Section 393(1)(k) at 0.1% from the invoice that takes cumulative purchase above ₹50 lakh; obtain seller's Section 394 self-declaration confirming precedence; deposit by 7th of following month under payment code 1012; track accumulated ITC against 5% input vs 18% output and file Section 54(3) refund quarterly; tag every iron ore export by IBM grade and apply the corresponding export duty rate; reconcile cross-era FY 2025-26 deductions filed under legacy 194Q against Form 26AS / Form 168.
Mineral vendor master keyed on PAN with prior-year buyer-turnover above ₹10 crore flag and seller's Section 394 self-declaration on file; Section 393(1)(k) ₹50 lakh per-PAN annual threshold reset on 1 April; payment code 1012 default; legacy 194Q tag retained for cross-era; coal compensation-cess rate map (₹400/tonne where applicable); IBM iron ore grade classification with linked customs export duty rate; Section 54(3) inverted-duty refund tracker with Rule 89(5) formula; royalty rate map by state and mineral.
A monthly mineral procurement close showing per-vendor YTD purchase value (iron ore, coking coal, ferro-alloys), Section 393(1)(k) deductions made under code 1012, deposits filed by the 7th, Section 394 seller-side precedence confirmations, accumulated inverted-duty ITC against Section 54(3) refund file, IBM-graded iron ore export entries with applicable export duty, and any cross-era 194Q items still open for FY 2025-26.
A finance head at a 5 MTPA integrated steel manufacturer in Odisha pulls the April 2026 procurement ledger — first month of the new Income Tax Act 2025 regime. Annual procurement: 5 lakh tonnes of iron ore at ₹6,200 per tonne (₹310 crore) from NMDC, OMC and three merchant miners; 3 lakh tonnes of coking coal at ₹18,000 per tonne (₹540 crore) split between SECL / MCL domestic and imported Australian / US grades; 24,000 tonnes of ferro-alloys (₹72 crore). Every supplier easily crosses ₹50 lakh per-PAN annual threshold for Section 393(1)(k) buyer-side TDS (payment code 1012) and every supplier also has turnover above ₹10 crore that would otherwise trigger Section 394 seller-side TCS (payment code 1073) — engaging the precedence rule. The same procurement runs 5% input GST against 18% finished steel output, creating an inverted-duty refund opportunity under Section 54(3) of the CGST Act. The plant exports about 8% of its iron ore production at a 30% export duty keyed to IBM Fe-content classification. This guide walks each rail and ties them back to the broader steel and metal manufacturing reconciliation in India framework.
Quick reference
| Item | Section / Regulator | Key threshold or rate |
|---|---|---|
| Purchase TDS on iron ore / coking coal | Section 393(1)(k), code 1012 | 0.1% above ₹50 lakh per PAN per year |
| Cross-era legacy reference | Section 194Q | Up to 31 March 2026 only |
| Seller-side TCS (overridden) | Section 394, code 1073 | 0.1% — but 393(1)(k) takes precedence |
| Buyer turnover trigger | Section 393(1)(k) | Above ₹10 crore in preceding year |
| GST on iron ore | CGST Act | 5% |
| GST on coal / coking coal | CGST Act | 5% + Compensation Cess of ₹400 per tonne (where applicable) |
| GST on finished steel | CGST Act | 18% |
| Inverted-duty refund | Section 54(3) CGST + Rule 89(5) | Refund of accumulated ITC |
| Iron ore export duty | Customs Act | Up to 30% on Fe-above-58% lumps/fines |
| Iron ore grade classification | Indian Bureau of Mines | By Fe content (lumps vs fines) |
| Royalty on iron ore | State Mining Department | Per IBM monthly average sale price |
| TDS deposit deadline | Section 393 | 7th of following month (April through Feb); 30 April for March |
Rail 1 — Section 393(1)(k) on iron ore and coking coal vendors
Section 393(1)(k) of the Income Tax Act 2025 (payment code 1012, replacing legacy Section 194Q) applies at 0.1% on resident-vendor purchases above ₹50 lakh aggregate per vendor PAN per year, where the buyer’s turnover crossed ₹10 crore in the immediately preceding year. For an integrated steel plant, every iron ore and coking coal vendor crosses ₹50 lakh well within the first month of the financial year — NMDC and OMC supplies for a 5 MTPA plant easily run ₹15-25 crore per month per vendor, coking coal vendors run ₹40-60 crore per month.
The per-vendor-PAN year-to-date purchase tracker reads invoice-by-invoice in posting sequence and triggers the 0.1% deduction flag from the invoice that takes cumulative purchase above ₹50 lakh. On every flagged invoice the deduction is made at credit-or-payment-whichever-is-earlier, deposited by the 7th of the following month under payment code 1012. Full mechanics at Section 393(1)(k) purchase TDS for manufacturing.
Rail 2 — Section 394 precedence determination
Section 394 of the Income Tax Act 2025 (payment code 1073, replacing 206C(1H)) on the seller side would otherwise require the miner with prior-year turnover above ₹10 crore to collect 0.1% TCS on sales above ₹50 lakh to a single buyer. NMDC, OMC, CIL subsidiaries — all easily above ₹10 crore turnover — would prima facie engage Section 394. But the law gives precedence to the buyer-side TDS: where both 393(1)(k) and 394 would engage, 393(1)(k) wins. The steel manufacturer must deduct, the miner must not collect.
The reconciliation control: a Section 394 self-declaration from the seller on file before the first procurement of the year, confirming that the buyer (the steel manufacturer) is deducting under 393(1)(k) and therefore the seller is not collecting under 394. Without this declaration, the seller may collect 0.1% TCS — creating a duplicate-deduction position that requires either reversal by the seller or a downstream credit adjustment in the buyer’s ITR.
Rail 3 — 5% input GST and Section 54(3) inverted-duty refund
Iron ore and coal both attract 5% GST. Finished steel attracts 18%. This creates the classic inverted-duty position. Over a financial year, an integrated steel plant with ₹850 crore of mineral procurement at 5% input GST = ₹42.5 crore of input tax credit on minerals, plus another ₹40-60 crore of input ITC on consumables, refractories and services. Output GST at 18% on, say, ₹2,500 crore of finished steel turnover = ₹450 crore — so the inverted-duty position is partial (output absorbs input). But for capital-intensive early-stage plants, or in quarters with depressed steel realisations, the accumulated ITC against output liability can run negative, creating a Section 54(3) refund opportunity.
Section 54(3) of the CGST Act permits refund of accumulated ITC under inverted duty. Rule 89(5) of the CGST Rules sets out the formula: maximum refund = (turnover of inverted rated supply × net ITC ÷ adjusted total turnover) − tax payable on inverted rated supply. The reconciliation control: monthly accumulated-ITC tracker, quarterly Section 54(3) refund file with input invoice → GSTR-2B → output liability mapping; refund typically takes 60-90 days from filing.
Rail 4 — IBM grade classification and export duty on iron ore
The Government of India levies export duty on iron ore based on Fe content grades classified by the Indian Bureau of Mines (IBM). Iron ore with Fe content above 58% in lumps and fines attracts 30% export duty; lower-Fe grades, concentrates and pellets attract lower rates (or in some cases nil) to encourage value addition. A steel plant exporting iron ore (or pellets to a foreign customer or sister entity) must reconcile the shipping bill to:
- The IBM grade classification certificate establishing Fe content per laboratory test
- The export duty computation at the applicable rate per the latest customs notification
- The customs duty payment challan
- The export invoice and packing list
- The foreign remittance receipt within nine months under FEMA
A grade-tagging error (mis-classifying a 58.5% Fe consignment as 57% Fe) is a routine customs adjudication trigger and leads to back-payment of duty with interest under the Customs Act.
Rail 5 — Royalty and state revenue
Royalty on iron ore is paid by the miner (not the steel plant) to the state government at rates notified under the Mines and Minerals (Development and Regulation) Act 1957. The rate is ad valorem (a percentage of the IBM monthly average sale price). For a captive miner — where a steel plant holds its own mining lease — the royalty is a direct cost of mineral production and reconciles separately. For a merchant procurement, the royalty sits inside the vendor’s price and does not appear on the steel plant’s books separately.
Rail 6 — Cross-era reconciliation FY 2025-26
Deductions on iron ore and coking coal made under legacy Section 194Q during FY 2025-26 continue to carry the legacy 194Q tag on the original TDS challan and TDS return (Form 26Q). Those deductions appear in the seller’s Form 26AS / AIS under the legacy 194Q label. From 1 April 2026, all new deductions on the same vendors carry payment code 1012 against Section 393(1)(k). Cross-era reconciliation against Form 168 (buyer view) must be able to match both labels. Correction challans for FY 2025-26 raised after April 2026 still go under 194Q. See Section 393 TDS new Income Tax Act reconciliation and TDS payment codes 1001-1092 India for the full code map.
Worked example: 5 MTPA integrated steel, FY 2026-27 first quarter
The Odisha plant closes Q1 FY 2026-27 with ₹230 crore of iron ore procurement across 5 vendors (₹75 Cr NMDC, ₹60 Cr OMC, ₹40 Cr each from two merchant miners, ₹15 Cr from an iron-ore-pellet supplier), ₹135 crore of coking coal across 4 vendors (₹50 Cr each from SECL and MCL, ₹35 Cr imported Australian) and ₹18 crore of ferro-alloys across 3 vendors. All vendors crossed ₹50 lakh in the first week. Section 393(1)(k) deductions: ₹38.3 lakh total at 0.1% (the calc is on value above ₹50 lakh × 0.1%). Section 394 precedence: all 12 vendors filed self-declarations confirming the buyer is deducting. Inverted-duty position: ₹19.15 crore accumulated ITC on minerals vs ₹4.5 crore output liability absorbed in the quarter (low realisation quarter) — Section 54(3) refund of ₹6.8 crore filed. Iron ore exports: 18,000 tonnes at 60% Fe content, 30% export duty of ₹2.2 crore on FOB value of ₹7.4 crore. Cross-era: 11 March 2026 invoice corrections for two iron ore vendors raised under legacy 194Q for ₹4.5 lakh deduction. Total reconciliation lines across the six rails in the quarter: about 2,400.
Determine 393(1)(k) vs 394 precedence on your mineral vendors
Where both buyer and seller cross ₹10 crore prior-year turnover and the transaction crosses ₹50 lakh, Section 393(1)(k) takes precedence over Section 394. Use the threshold determiner to map every iron ore, coking coal and ferro-alloy vendor to the correct side.
Open the Section 393(1)(k) vs 394 Threshold Determiner →What automated reconciliation changes
Steel finance teams running the six mineral procurement rails on spreadsheets typically spend 5-7 days per monthly close on the per-vendor 393(1)(k) tracker, the Section 394 precedence determination, the inverted-duty ITC tracker and the cross-era 194Q match. Purpose-built reconciliation software India configured with the mineral procurement preset carries the per-PAN ₹50 lakh tracker, the Section 394 self-declaration register, the Rule 89(5) inverted-duty refund computation, the IBM grade-tagged export duty rate map and the cross-era 194Q / 1012 dual-tag match out of the box. Customer outcomes include match-rate improvement from 51% to 88% on the mineral procurement rail and a 50-65% reduction in close time on the TDS and inverted-duty rails. Build is two-to-four weeks on AWS Mumbai (ISO 27001:2022) once the ERP exports a structured PO, GRN, invoice, weighbridge and grade-test extract. For the headline three-way match rail see three-way matching software India. For the IBM iron ore grade classification, the Indian Bureau of Mines is the authoritative source. Cross-reference steel and metal manufacturing reconciliation in India and the manufacturing reconciliation in India pillar for the wider close pattern.