Jeweller Buying Goods and Giving Job-Work: Section 194C vs 194Q Trap

A national jewellery chain’s controller sits down at 30 June close with a schedule that looks routine and turns out not to be. The chain sources bar gold from four bullion dealers and outsources making to 240 karigar workshops across Bangalore, Coimbatore, Kolkata, Mumbai, and Ahmedabad. In the trailing twelve months, the chain has moved ₹1,847 crore of bullion into inventory and paid ₹78 crore of making charges — 4.2 percent of the underlying gold value, a normal ratio for the chain’s product mix of light-weight daily-wear jewellery plus heavier wedding pieces. The TDS deducted on the combined ₹1,925 crore envelope, per the AP module’s global default, is ₹1.925 crore at 0.1 percent under the legacy Section 194Q rule. The correct answer under the Income-tax Act 2025 is ₹1.847 crore on the goods leg plus ₹78 lakh (individual and HUF karigars at code 1001) plus ₹80 lakh (other-resident karigars at code 1023) on the making leg — a total closer to ₹3.5 crore. The gap is ₹1.6 crore, sitting stuck as the jeweller’s own cash outflow-in-waiting the moment the department cross-references the challan-out register with the making-charge invoice register at the next assessment. This is the jewellery Section 194C 194Q job work purchase goods trap at production scale, and the reconciliation discipline that resolves it is what separates a clean close from a Section 415 inquiry.

Quick reference

What the jewellery job-work flow actually looks like in India

The Indian gold jewellery value chain is structurally split between the branded retailer and the maker. Even the largest chains — Tanishq under Titan Company, Kalyan Jewellers, Malabar Gold and Diamonds, Senco Gold, Joyalukkas, Reliance Jewels — do not manufacture in-house at scale. They design, procure bullion, and outsource the making to a distributed network of karigar workshops that specialise in specific piece types (chains, bangles, temple jewellery, wedding sets, gold-plated silver combinations) and specific processes (casting, hand-hammering, filigree, kundan-meena, enamelling, machine-chain). The retailer holds the design IP, the raw gold, and the customer relationship; the karigar contributes labour, tooling, small consumables (solder, wax, findings), and skill.

The economic transaction pattern is therefore two-legged. On leg one, the retailer buys bar gold from a bullion dealer — typically 995 or 999 purity in tola or kilo bars — under a purchase order at the day’s fixed rate. The bullion invoice carries HSN 7108, 3 percent GST, and full transfer of title from dealer to jeweller. On leg two, the jeweller issues a job-work challan under Section 143 CGST for the gold to leave its premises for making, with the karigar acting as bailee, not buyer. The challan carries no invoice, no title transfer, and no GST on the gold value; only the making-charge line — billed by the karigar when the piece comes back — carries 5 percent GST under heading 9988. The finished article is then hallmarked at the jeweller’s registered Assaying and Hallmarking (A&H) centre under BIS Rules 2018, receives a HUID, and enters the retail inventory.

The reconciliation problem arises because the same counterparty is often on both legs. A mid-market chain in Coimbatore may use the same trusted maker for both — buying finished ready-stock chains from the maker (under a purchase invoice at 3 percent GST on HSN 7113) and simultaneously giving the same maker gold to make custom wedding pieces on a job-work basis (under a challan with the maker billing 5 percent GST on the making charge only). The AP module sees two invoices from the same GSTIN in the same month and — unless the master data disambiguates — defaults to a single TDS treatment. If the default is 194Q at 0.1 percent (the newer, broader provision that AP teams often apply), the making-charge invoice is short-withheld by a factor of 10 or 20.

The three flow patterns to keep separate:

• Pure purchase: bullion from a dealer with no maker relationship, or finished stock from a wholesaler. Section 393(1) Sl. 8, code 1031, 0.1 percent above ₹50 lakh per FY. HSN 7108 or 7113 at 3 percent GST.
• Pure job-work: gold sent to a karigar under a challan and returned as a finished piece; only the making charge is billed. Section 393(1) Sl. 4, code 1001 (individual/HUF) at 1 percent or 1023 (other) at 2 percent above ₹30,000 single / ₹1,00,000 aggregate per FY. GST heading 9988 at 5 percent on the making charge line only.
• Mixed counterparty: same GSTIN, two flows in the same month. Both TDS regimes apply, on separate bases, with separate aggregation windows.

The Income-tax Act 2025 overlay — Section 393(1) Sl. 4 versus Sl. 8

The Income-tax Act 2025 has replaced the 1961 Act effective FY 2026-27, carrying forward the substantive TDS provisions into a re-numbered scheme. Two provisions govern the jewellery scenario, and the sharp line between them is what drives the reconciliation risk.

Section 393(1) Sl. 4 — works contract (legacy 194C)

Section 393(1) Sl. 4 covers payments to a resident contractor for carrying out any work — including supply of labour for carrying out any work — under a contract. The provision imports the entire legacy 194C jurisprudence: works contracts are distinguished from contracts for sale of goods by the customer’s active involvement in specifying, procuring, or supplying the primary raw material. When a jeweller supplies the gold under a job-work challan and the karigar returns a finished piece against a making charge, the transaction is squarely a works contract — the karigar is not selling gold; the karigar is selling labour and skill on gold that never leaves the jeweller’s ownership.

The rate structure under Sl. 4 depends on the karigar’s PAN category. Payment code 1001 applies to individual or HUF deductees at 1 percent. Payment code 1023 applies to any other resident deductee (partnership firm, LLP, private limited company, cooperative society) at 2 percent. The threshold — carried forward from legacy 194C — is ₹30,000 per single credit or payment, or ₹1,00,000 in aggregate credits or payments during a financial year, whichever is earlier. Once either threshold breaches, TDS applies on the full amount (not just the excess).

The jurisdictional test is unchanged from legacy 194C: is the primary raw material supplied by the customer? For gold jewellery job-work, the answer is definitionally yes — the jeweller supplies the gold under a Section 143 CGST job-work challan, retains ownership throughout, and the karigar contributes only labour plus minor consumables (solder, small findings, wax). Circular 715 of 1995 under the old Act had already confirmed this classification for jewellery-making arrangements, and no subsequent notification or judicial pronouncement has disturbed it. The classification survives the 2025 Act intact.

Section 393(1) Sl. 8 — purchase of goods (legacy 194Q)

Section 393(1) Sl. 8 covers the buyer’s TDS on purchase of goods, successor to legacy Section 194Q. The rate is 0.1 percent on the purchase consideration above ₹50 lakh aggregate per seller in the financial year. Two conditions must be met simultaneously for the buyer TDS to trigger: the buyer’s turnover in the immediately preceding financial year must exceed ₹10 crore (a threshold most jewellery chains meet trivially), and the aggregate purchase consideration from a single seller must cross ₹50 lakh in the current FY.

Circular 20/2021 (still authoritative for the 194Q mechanics carried into the 2025 Act) explicitly clarified that where a jeweller separately invoices bullion purchase and job-work labour under distinct documents, only the bullion invoice enters the 194Q base — the job-work invoice sits under the works-contract regime. The circular rules out double-counting.

The mutual-precedence rule between Sl. 8 (buyer TDS) and Section 206C(1H) (seller TCS on sales above ₹50 lakh) is preserved: where both provisions would trigger on the same transaction, Sl. 8 wins and the seller does not collect TCS. The jeweller-buyer must therefore deduct 194Q (code 1031) at 0.1 percent, and the bullion dealer must not also charge 206C(1H) TCS at 0.1 percent — a common double-billing error at bullion invoicing.

Where the two provisions collide

A ₹5 lakh monthly making charge from a partnership karigar in Kolkata attracts code 1023 at 2 percent — ₹10,000 TDS. The same ₹5 lakh mis-classified as a goods purchase attracts code 1031 at 0.1 percent — ₹500 TDS. The short-withhold of ₹9,500 on a single karigar-month scales linearly with the karigar count and the making-charge envelope. A national chain running 240 karigars with an average ₹3 lakh monthly making charge each will book ₹72 lakh of making charges per month and ₹8.64 crore per year. The correct blended TDS on that base — assuming a 40:60 individual-to-partnership mix — is ₹8.64 crore × [0.40 × 1% + 0.60 × 2%] = ₹8.64 crore × 1.6% = ₹13.82 lakh. The mis-classified 0.1 percent treatment would withhold only ₹86,400 — a ₹12.96 lakh gap per year on the making-charge base alone.

A worked example: an Indian jewellery manufacturer and retailer, single karigar-month

Consider a mid-market Bangalore-based jewellery brand — [an illustrative persona modelled on chains like Malabar Gold & Diamonds and Senco Gold] — which sources bar gold from a bullion dealer in Ahmedabad and outsources chain-making to a Kolkata-based karigar partnership firm named Kalyan Ornaments LLP. In June 2026, the brand runs two flows with Kalyan Ornaments LLP: it buys ready-stock finished chains worth ₹5 lakh under an invoice with HSN 7113 at 3 percent GST, and it also sends 220 grams of 995 bar gold on a job-work challan and receives back finished chains with a making-charge bill of ₹40,000 under GST heading 9988 at 5 percent.

Illustrative — the counterparty and figures are representative of the operating pattern, not actual customer data. Cross-verify against your own vendor master and challan register before action.

The brand’s AP module, running a global default of 194Q on all vendor invoices above ₹50 lakh cumulative in the FY, sees two invoices from Kalyan Ornaments LLP totalling ₹5.40 lakh in June 2026. The cumulative FY spend against the same PAN has already crossed ₹50 lakh (Kalyan Ornaments LLP is a long-standing vendor). The AP module deducts TDS at 0.1 percent on the full ₹5.40 lakh — ₹540 — and posts the invoices for payment.

The correct treatment, worked out line by line

The two legs must be handled separately:

• Leg 1 — purchase of finished chains at ₹5,00,000: This is a sale of finished-goods jewellery, HSN 7113. Since Kalyan Ornaments LLP’s aggregate FY sales to the brand have crossed ₹50 lakh, Section 393(1) Sl. 8 (code 1031) applies at 0.1 percent. TDS on this leg = ₹500.
• Leg 2 — making-charge invoice at ₹40,000 on job-work challan: This is a works contract under Section 393(1) Sl. 4. Kalyan Ornaments LLP is a partnership firm — code 1023 at 2 percent applies. But the ₹30,000 single-credit threshold is breached (₹40,000 > ₹30,000), so TDS applies on the full amount. TDS on this leg = ₹40,000 × 2% = ₹800.

Correct total TDS for June 2026 on the Kalyan Ornaments LLP counterparty = ₹500 + ₹800 = ₹1,300. AP module deducted ₹540. Short-withhold on a single karigar-month = ₹760.

Scaling the illustrative error to the annual base

The same misclassification, applied across a national chain’s karigar footprint, compounds fast. Assume the brand runs 200 karigars with mixed PAN categories (100 individuals or HUFs, 100 partnerships or companies), each with an average making-charge bill of ₹3 lakh per month:

The illustrative ₹59,000 short-withhold scenario referenced in the audit brief is a single mixed-invoice month at a mid-size karigar: a ₹6 lakh combined transaction split wrongly (all treated as goods) withholds ₹600 instead of the ~₹5,500 to ₹12,100 needed under the correct 194C application on the making-charge leg. A single national chain with 240 karigars and 12 months of exposure sits with a ₹50 lakh to ₹1.2 crore annual short-deduction that no CFO wants surfacing in a Section 415 inquiry.

The Section 415 (legacy 201) consequence

If the department challenges the classification and reads the challan-out register (which will unambiguously show job-work movement, not sale) plus the making-charge invoice at 5 percent GST (which will unambiguously flag heading 9988), the jeweller is treated as an assessee-in-default under Section 415 of the Income-tax Act 2025. The consequences: pay the short-deducted amount (₹1.008 crore in the illustrative annual scenario), pay interest at 1 percent per month for every month from the deduction date until actual deposit, and face a possible penalty equal to the short-deducted amount under Section 449 (legacy Section 271C). A one-year assessment lag alone piles on ₹12 lakh of interest before penalty is even considered.

The reverse trap — when 194C rate is applied to a straight goods purchase

The reverse mis-classification is less common but does happen: a jeweller applies 194C at 1 percent or 2 percent to what is genuinely a purchase of finished goods, over-deducting by a factor of 10 or 20 relative to the correct 194Q rate. The over-deduction is not lost — the karigar / vendor claims the credit in their Form 26AS and can eventually recover it — but the vendor experiences a working-capital hit and the jeweller has burnt reputation with a supplier for a compliance overreach.

The trigger for this error is usually a finance team that has been burned once on the under-deduction side and swings the pendulum to the opposite extreme, applying 194C to every jewellery-vendor invoice regardless of whether the underlying transaction is a purchase or a job-work. The remediation is the same as for the under-deduction case: a rigorous vendor master and source-document classification discipline that reads the transaction, not a global default.

The BIS hallmarking and job-work challan paper trail

Every article of gold jewellery sold in India must carry a BIS hallmark with a six-digit HUID under the BIS Hallmarking (Regulation of Manufacture, Sale and Import) Rules 2018 as authoritatively documented on the BIS site. The hallmarking discipline generates a paper trail that is decisive in any TDS inquiry.

When a jeweller sends un-hallmarked gold to a karigar, the movement happens on a Section 143 CGST job-work challan — a document that explicitly states no transfer of title, no invoice, and no GST on the gold value. When the finished piece returns from the karigar, the jeweller records the challan-back, ages it against the challan-out register, applies the HUID at the registered A&H centre, and posts the piece into finished-goods inventory. The making-charge invoice is billed separately by the karigar with GST heading 9988 at 5 percent on the making-charge line only.

An auditor reading the reconciliation pack sees the challan register and the 5 percent GST line and immediately classifies the transaction as job-work under the works-contract regime. A jeweller that has deducted 194Q at 0.1 percent on the making-charge portion has no defence — the source documents themselves establish the works-contract character. Conversely, when the jeweller books a bullion purchase against a tax invoice with HSN 7108 at 3 percent GST from a bullion dealer with no job-work challan movement, the classification is equally unambiguous — a straight purchase under 194Q.

The reconciliation discipline therefore anchors on the source document: the challan-out register drives the 194C base, the tax-invoice register drives the 194Q base, and no invoice can enter both bases. Where the same counterparty runs both flows in the same month, the two source documents keep the bases separate.

Common reconciliation breakages

Five patterns break the split at production scale:

• Global TDS defaults at the AP module level — the module applies one rate to a vendor GSTIN regardless of source document, silently classifying the making-charge portion of a mixed counterparty under whichever default is set (usually 194Q at 0.1 percent, because 194Q was rolled out later and is often the newer configuration).
• Mixed invoices from single-counterparty makers — the karigar bills gold value and making charges on a single invoice line rather than two, and the AP team applies one TDS rate to the whole envelope without splitting.
• Missing PAN category flag — the vendor master captures the PAN but not whether it is individual/HUF or other-resident, so the TDS engine cannot select between code 1001 (1 percent) and code 1023 (2 percent) — it defaults to one, usually the lower rate.
• Threshold aggregation running on the wrong axis — the ₹50 lakh 194Q threshold is aggregated per seller per FY across all invoice types, and the ₹30,000 / ₹1,00,000 194C threshold is aggregated per contractor per FY on works-contract flows only; running one aggregation and defaulting the other suppresses the trigger for whichever regime is under-weighted.
• Un-returned job-work challans left as WIP forever — challans issued 12 months ago with no return either represent long-cycle wedding jewellery (still legitimately WIP) or disguised sales (in which case the transaction was really a purchase and the 194Q classification should have applied). Without a challan-ageing discipline, the WIP either hides an under-deduction or an over-deduction, both of which surface at year-end.

How a reconciliation platform handles this

A reconciliation platform anchored on the source document — not on the vendor GSTIN alone — separates the goods-purchase register from the job-work register from the moment each transaction lands. Vendor masters carry counterparty type and PAN category; source-document rules route tax invoices with HSN 7108/7113 into the goods leg and job-work challans with heading 9988 making-charge invoices into the works-contract leg; TDS codes 1031, 1001, and 1023 are applied per leg based on PAN category and cumulative aggregation windows kept separately per counterparty per FY. The Jewellery reconciliation software India pillar walks through the full end-to-end pack — vendor master to challan register to TDS ledger to Form 27Q filing — that supports a defendable close and audit-ready posture through DPDP Act 2023-aligned data handling on AWS Mumbai.

Cross-cluster bridges and where to read next

For jewellery-specific TDS treatment on the pure karigar-labour flow, read the sibling article on karigar workshop labour TDS under Section 393(1) Sl. 4 code 1001. For the goods-purchase side of the split, the deeper reference on the ₹50 lakh threshold and code 1031 mechanics is TDS Section 393(1) Sl. 8 code 1031 — purchase of goods (legacy 194Q). The GST-side companion on the 3 percent versus 5 percent split is Gold 3% vs making charges 5% — the CBIC split on jewellery invoices. For a mixed-invoice reconciliation pattern that echoes across categories, the FMCG trade-scheme accrual pattern under Section 15(2) CGST illustrates the same discipline of separating one economic flow into two tax regimes. The reference on the parallel migration path from legacy code assignments is at TDS Section 393(1) Sl. 18 code 1015 — commission and brokerage (legacy 194H).

The five FAQs below address the operational questions Indian jewellery CFOs and controllers ask most often when reconciling mixed karigar counterparties under the Income-tax Act 2025.

Terra Insight Editorial Team Reconciliation Infrastructure

Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →

Published 1 July 2026

Domain expertise

TDS Reconciliation GST Input Credit Platform Settlements NACH Batch Matching Bank Reconciliation Form 26AS Matching ERP Integrations Enterprise Finance Ops

Reviewed by

NK

Navin Krishnan

Managing Director & Founder — Terra Insight

Ex Amazon India · Intuit QuickBooks · Tata nexarc

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