Section 194Q Limestone Purchase Mining Lease Cement Reconciliation

A Tier-1 Indian cement producer running an integrated cement plant at Salem in Tamil Nadu operates on a hybrid limestone sourcing model — a captive limestone mining lease within a five-kilometre radius of the plant supplying an illustrative 4 million tonnes per annum of feed limestone to the clinker line (a partial requirement of the plant’s total limestone demand), plus supplementary third-party procurement from an independent mining lease holder in the adjoining Ariyalur district supplying an illustrative 1.8 million tonnes per annum at Rs 340 per tonne delivered ex-mine (including transport and operator margin) — an aggregate of Rs 61.2 crore per financial year. Two completely different tax mechanics apply to the two limestone flows. The captive-lease flow attracts royalty payable to the Tamil Nadu Government under Section 9 of the Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act 1957), plus 30 percent of the royalty to the District Mineral Foundation (DMF) under Section 9B (for leases granted post-12 January 2015; 10 percent for pre-2015 leases), plus 2 percent of the royalty to the National Mineral Exploration Trust (NMET) under Section 9C — every one of these is a Government payee flow and falls outside Section 194Q of the Income-tax Act 1961 per the Section 194Q(3) explicit carve-out. The third-party procurement flow from the independent Ariyalur mining lease holder is a resident seller purchase and triggers Section 194Q at 0.1 percent on the aggregate value in excess of the Rs 50 lakh per-seller-per-financial-year threshold — an illustrative Rs 6.07 lakh Section 194Q TDS per year. The reconciliation discipline that keeps the captive-versus-third-party split clean, holds the seller-wise procurement aggregate against the Rs 50 lakh trigger, resolves the Section 206C(1H) TCS mutual-exclusion overlap in favour of the buyer’s Section 194Q per CBDT Circular 13 of 2021 dated 30 June 2021 and threads the migration to Section 393 code 1031 under the Income-tax Act 2025 from 1 April 2026 forward is the subject of this Section 194Q limestone purchase mining lease cement reconciliation walkthrough.

Quick reference

The reconciliation in one paragraph

A Tier-1 or Tier-2 Indian cement producer running a hybrid limestone sourcing model — a captive mining lease for the base-load feed to the clinker line, supplemented by third-party procurement from an independent mining lease holder in the adjoining district — must run two completely separate compliance stacks against the same physical raw material. The captive-lease flow is a Government payee flow — royalty to the State Government, DMF to the district, NMET to the Central Government — and every rupee sits outside the Section 194Q net per the Section 194Q(3) explicit carve-out for Government payees. The third-party procurement flow is a resident seller purchase and triggers Section 194Q at 0.1 percent on the aggregate value in excess of the Rs 50 lakh per-seller-per-financial-year threshold. The seller-wise aggregate is the operational trigger — the buyer must aggregate all purchases from the same seller (identified by PAN) during the financial year and deduct only on the excess over Rs 50 lakh, per the CBDT Circular 13 of 2021 dated 30 June 2021 operational guideline. Where the third-party seller’s own turnover crosses the Rs 10 crore Section 206C(1H) threshold, the buyer’s Section 194Q obligation takes precedence and the seller’s Section 206C(1H) TCS obligation stands discharged — the buyer sends a written intimation confirming the deduction and the seller reconciles the mutual-exclusion in the seller’s own TCS filing. The migration to Section 393 code 1031 under the Income-tax Act 2025 for transactions dated on or after 1 April 2026 is the transition surface that must be timed into the Form 26Q filing schema shift. The reconciliation surface that holds all of this together is a seller-wise financial-year procurement aggregate register with the Section 194Q(3) Government payee exclusion tag, the Rs 50 lakh threshold cross-over flag, the challan reference and deposit date, and the section code mapping for the transition period.

What the scenario looks like in India — a Salem cement plant persona

The illustrative persona for this walkthrough is a Tier-1 Indian cement producer operating an integrated cement plant at Salem in Tamil Nadu, with a captive limestone mining lease at a location within a five-kilometre radius of the plant (typical for South Indian cement plants for logistics economics) plus supplementary third-party limestone procurement from an independent mining lease holder in the adjoining Ariyalur district. The captive lease supplies an illustrative 4 million tonnes per annum of feed limestone to the clinker line — a partial requirement of the plant’s total limestone demand, sized to the captive reserve’s economic-mining envelope. The third-party procurement supplements the captive supply with an illustrative 1.8 million tonnes per annum from the Ariyalur seller at Rs 340 per tonne delivered ex-mine (including transport and operator margin), aggregating Rs 61.2 crore per financial year.

Illustrative Tier-1 and Tier-2 Indian cement producers operating in the South Indian and West Indian limestone belts include UltraTech Cement (Aditya Birla group, multiple integrated plants across the Rajasthan, Madhya Pradesh, Karnataka and Andhra Pradesh limestone belts), Shree Cement (Rajasthan-anchored with expansion across the north and east), Ambuja Cements and ACC Ltd (both Adani group post-acquisition, spanning the Gujarat, Rajasthan, Chhattisgarh and Karnataka belts), Dalmia Bharat Cement (Tamil Nadu-anchored with expansion across the east), JK Cement (Rajasthan-anchored), Ramco Cements (Tamil Nadu-anchored with Ariyalur and Salem integrated plants and expansion into Karnataka and Andhra Pradesh), Birla Corporation (Madhya Pradesh and Rajasthan), HeidelbergCement India (Madhya Pradesh and Karnataka), JK Lakshmi Cement (Rajasthan and Chhattisgarh), Prism Johnson (Madhya Pradesh Satna belt), Nuvoco Vistas (Rajasthan and Chhattisgarh) and Orient Cement (Telangana and Karnataka). Every one of these producers runs some variant of the captive-plus-third-party limestone sourcing model at least at one plant location, and the Section 194Q compliance mechanic documented here is the standing quarterly filing discipline for the third-party procurement bucket across the group.

The regulatory overlay — Section 194Q, Section 194Q(3), Section 206C(1H) and the Section 393 successor

Four regulatory anchors govern the cement producer’s Section 194Q compliance for third-party limestone procurement. Section 194Q of the Income-tax Act 1961 is the operational TDS provision; Section 194Q(3) is the explicit Government payee carve-out; Section 206C(1H) is the seller-side TCS provision with which Section 194Q is mutually exclusive; and Section 393 of the Income-tax Act 2025 (code 1031, Serial 8, Table I) is the successor provision from 1 April 2026 onwards.

Section 194Q was inserted by the Finance Act 2021 with effect from 1 July 2021. Sub-section (1) requires any person, being a buyer who is responsible for paying any sum to any resident (referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding Rs 50 lakh in any previous year, to deduct an amount equal to 0.1 percent of such sum exceeding Rs 50 lakh as income-tax at the time of credit or payment (whichever is earlier). The buyer for Section 194Q purposes is a person whose total sales, gross receipts or turnover from the business carried on by him exceeds Rs 10 crore during the financial year immediately preceding the financial year in which the purchase is carried out. A Tier-1 cement producer running an integrated plant at Salem clearly crosses the Rs 10 crore preceding-year turnover threshold and is a Section 194Q buyer. The rate rises to 5 percent under Section 206AA where the seller does not furnish PAN.

Section 194Q(3) sets out the exclusions. The most important exclusion for a cement producer is the Government payee carve-out — royalty paid to the State Government under a mining lease notified under the MMDR Act 1957 is not a purchase from a resident seller within the meaning of sub-section (1) and falls outside Section 194Q. The DMF contribution to the district and the NMET contribution to the Central Government also fall outside Section 194Q on the same Government payee logic. The captive limestone extraction operation therefore does not trigger any Section 194Q compliance surface on the royalty flow — the compliance surface arises only when the cement producer purchases limestone from a third-party independent mining lease holder as an external commercial transaction. Section 194Q(3) also excludes transactions on which tax is deductible under any other TDS provision (avoiding double deduction) and transactions on which tax is collectible by the seller under Section 206C other than sub-section (1H).

Section 206C(1H) was inserted by the Finance Act 2020 with effect from 1 October 2020 and requires every seller whose turnover exceeds Rs 10 crore in the preceding financial year to collect 0.1 percent TCS on sale consideration exceeding Rs 50 lakh from the buyer. The overlap with Section 194Q (both provisions technically apply to the same transaction where both the buyer and the seller cross the Rs 10 crore turnover threshold and the transaction crosses the Rs 50 lakh threshold) is resolved by CBDT Circular 13 of 2021 dated 30 June 2021 — the buyer’s Section 194Q takes precedence and the seller’s Section 206C(1H) obligation stands discharged. The buyer must intimate the seller in writing (typically at purchase order issuance or by the first triggering invoice) that the buyer will be deducting under Section 194Q so the seller does not also collect under Section 206C(1H). The buyer’s Form 26Q filing and the seller’s Form 26AS (or Annual Information Statement) are the mutual-exclusion cross-reference surfaces.

The Income-tax Act 2025 consolidates the TDS regime under a single Section 393 with a schedule of payment codes across Serial numbers. Serial 8 (Table I to Section 393(1)) governs purchase of goods and carries payment code 1031 as the successor to legacy Section 194Q. The substantive rules are retained — the 0.1 percent rate, the Rs 50 lakh per-seller-per-financial-year threshold, the Rs 10 crore preceding-financial-year buyer turnover test, the Government payee carve-out and the Section 206C(1H) mutual-exclusion mechanic. From 1 April 2026 (start of Financial Year 2026-27), the Form 26Q filing must map the Section 194Q entries to Section 393 code 1031 for post-1-April-2026 transactions, while transactions dated up to 31 March 2026 continue under legacy Section 194Q. The TDS payment code 1031 Section 393 Serial 8 II purchase of goods walkthrough and the Section 393 payment code finder tool document the full transition mapping for all Serial 1-through-20 codes.

A worked example — Salem plant third-party limestone procurement at year-end

Illustrative — the following figures represent the operating pattern of a Tier-1 Indian cement producer running a captive-plus-third-party limestone sourcing model at an integrated plant at Salem in Tamil Nadu. Public disclosures by listed Indian cement majors do not reveal per-plant per-lease-source cost quantum in the granularity below; cross-verify against your own procurement register and the CFO’s Section 194Q compliance policy before action.

The Salem plant closes Financial Year 2026-27 with the following limestone procurement flow:

The captive-lease flow — royalty, DMF, NMET — aggregates Rs 47.52 crore and sits outside Section 194Q entirely on the Section 194Q(3) Government payee carve-out. No TDS is deducted on this flow. The internal extraction cost of Rs 58 crore is an internal cost with no external supplier and does not trigger any TDS provision (though individual line items within the internal cost — external contractor payments for overburden removal, blasting, hauling, third-party equipment hire — do trigger their own Section 194C/194J/194I compliance surfaces where applicable, each running on its own reconciliation surface).

The third-party procurement flow of Rs 61.20 crore triggers Section 194Q. The Section 194Q deduction runs on the aggregate value in excess of the Rs 50 lakh threshold:

• Aggregate procurement from the Ariyalur seller during Financial Year 2026-27: Rs 61.20 crore
• Section 194Q threshold (per seller PAN per financial year): Rs 50 lakh (Rs 0.50 crore)
• Value in excess of threshold: Rs 61.20 crore minus Rs 0.50 crore = Rs 60.70 crore
• Section 194Q TDS at 0.1 percent on Rs 60.70 crore: Rs 6.07 lakh

The Section 194Q TDS of Rs 6.07 lakh is deducted at the earlier of credit or payment on each invoice from the trigger date (the date the aggregate for the financial year crosses Rs 50 lakh) onwards. For a monthly procurement pattern of Rs 5.1 crore per month, the Rs 50 lakh threshold is crossed within the first ten days of the financial year, and Section 194Q applies to almost the entire year’s flow. The TDS is deposited to the Central Government by the 7th of the following month via challan; the Form 26Q quarterly filing captures the deduction against the seller’s PAN and the buyer’s TAN.

For post-1-April-2026 transactions, the Form 26Q filing must map the Section 194Q entries to Section 393 code 1031 per Serial 8, Table I to Section 393(1) of the Income-tax Act 2025. The challan reference, TAN, PAN and deduction amount fields do not change — only the section code in the filing schema shifts from Section 194Q to Section 393 code 1031.

The written intimation to the Ariyalur seller confirming the buyer’s Section 194Q deduction is issued at the purchase order stage (or by the first triggering invoice in the financial year) to discharge the seller’s Section 206C(1H) TCS obligation on the same transaction. The seller’s acknowledgement of the intimation is filed in the intimation register and cross-referenced against the seller’s Form 26AS or Annual Information Statement to confirm no double-collection on the same consideration.

Common reconciliation breakages

Five breakages recur across cement producers running the Section 194Q compliance mechanic for third-party limestone procurement, and each maps to a specific control failure that a jurisdictional assessing officer, a Chief Commissioner of Income Tax reviewing a scrutiny assessment, a statutory auditor testing the tax reconciliation or the Comptroller and Auditor General’s mining royalty audit team will surface.

• Captive-versus-third-party split muddied at chart-of-accounts level. The most common failure is a single limestone raw material GL account that pools royalty to the State Government (Government payee, no Section 194Q), DMF and NMET (Government payees), captive extraction opex (internal cost, no external supplier) and third-party procurement (resident seller, Section 194Q applicable). The Section 194Q-relevant subset is lost in the aggregate and the compliance team either over-deducts (running Section 194Q on the full limestone raw material spend) or under-deducts (missing the third-party seller trigger because it is buried in the aggregate). Reconciliation discipline: the chart of accounts splits the limestone flow into captive-lease sub-accounts (royalty / DMF / NMET / extraction opex / overhead allocation) and third-party procurement sub-accounts (by seller PAN), and the Section 194Q trigger is monitored only against the third-party sub-accounts. The reconciliation failure mode analysis design pillar and the reconciliation playbook for monthly close operations pillar frame the design-and-operate discipline that surfaces this split failure at chart-of-accounts design time rather than at year-end filing.

• Seller-wise per-financial-year aggregate not maintained — deduction triggered on wrong base. Section 194Q applies to the value in excess of Rs 50 lakh per seller PAN per financial year. A common failure is deducting on the first Rs 50 lakh of purchases from a seller (wrong — the first Rs 50 lakh is exempt), or missing the trigger when the aggregate crosses Rs 50 lakh mid-year (under-deduction). The seller-wise per-financial-year aggregate is a foundational data structure and must be maintained on a rolling basis from the start of every financial year, resetting on 1 April. Reconciliation discipline: the procurement register auto-computes the running aggregate per seller PAN and flags the Rs 50 lakh cross-over date; every invoice booked after the cross-over date auto-triggers the Section 194Q deduction on the full invoice value (net of GST where the GST is separately identifiable). The Section 194Q TDS chemical purchase 50 lakh buyer-side reconciliation walkthrough frames the same seller-wise aggregate discipline for a chemical manufacturer procuring specialty intermediates — the mechanic is identical across the two clusters.

• Section 206C(1H) intimation to the seller not sent — double-collection creates reconciliation gap. Where the third-party seller’s own turnover crosses the Rs 10 crore Section 206C(1H) threshold, the seller is technically obligated to collect 0.1 percent TCS on the same consideration on which the buyer is deducting 0.1 percent TDS under Section 194Q. Absent a written intimation from the buyer confirming the Section 194Q deduction, the seller collects TCS on the same transaction and the seller’s Form 26AS shows both the buyer’s TDS and the seller’s TCS credit — the same tax is effectively counted twice. Reconciliation discipline: the buyer’s compliance team issues the written intimation to every seller crossing the Section 194Q threshold at the purchase order stage (or by the first triggering invoice in the financial year), obtains the seller’s acknowledgement and files both in the intimation register. The buyer’s Form 26Q filing and the seller’s TCS filing are the mutual-exclusion cross-reference surfaces.

• Form 26Q section code mapping wrong across the Section 194Q to Section 393 code 1031 transition. The Income-tax Act 2025 shifts the TDS filing from legacy Section 194Q to Section 393 code 1031 for transactions dated on or after 1 April 2026. A common transition failure is filing April 2026 quarter Form 26Q under legacy Section 194Q for transactions that should map to Section 393 code 1031, or continuing to file Section 393 code 1031 for transactions dated up to 31 March 2026 that should remain under legacy Section 194Q. The transition boundary is the transaction date (invoice date or payment date, whichever triggered the deduction), not the filing date. Reconciliation discipline: the Section 194Q deduction ledger carries the transaction date as a mandatory field and auto-maps the section code to legacy Section 194Q for pre-1-April-2026 transactions and to Section 393 code 1031 for post-1-April-2026 transactions. The Section 393 payment code finder tool is the standing reference for the transition mapping.

• Threshold applied to gross invoice value including GST rather than taxable value excluding GST. Section 194Q applies to the amount payable to the seller for the goods (excluding GST where the GST is separately identifiable on the invoice) per CBDT operational clarification. A common failure is applying the Rs 50 lakh threshold and computing the deduction on the gross invoice value including GST, which triggers the Section 194Q deduction earlier than it should (over-deduction) and computes the deduction base incorrectly (over-deduction). Reconciliation discipline: the invoice booking captures the taxable value and the GST separately, and the Section 194Q aggregate and deduction runs on the taxable value only. The human errors detection envelope anchor documents the seven-family human-error taxonomy that surfaces the invoice-value-versus-taxable-value confusion as a Family 3 unit-of-measure classification lapse.

How a reconciliation platform handles this

A purpose-built cement reconciliation platform ingests every limestone procurement debit — captive-lease royalty payments to the State Government, DMF and NMET remittances, internal extraction cost allocations, and third-party procurement invoices from independent mining lease holders — against a source-tagged procurement register, splits each debit into the Government payee bucket (Section 194Q(3) carve-out — no TDS surface) and the third-party resident seller bucket (Section 194Q applicable) at the point of invoice booking, maintains a per-seller-PAN per-financial-year rolling aggregate against the Rs 50 lakh threshold with the cross-over date flagged, auto-triggers the Section 194Q deduction on the taxable value (excluding separately-identified GST) of every invoice booked after the cross-over date, issues the written intimation to Section 206C(1H)-applicable sellers with acknowledgement tracking to discharge the mutual-exclusion, deposits the deducted TDS via challan by the 7th of the following month with challan reference captured against each deduction entry, files Form 26Q quarterly with the correct section code mapping (legacy Section 194Q for transactions dated up to 31 March 2026, Section 393 code 1031 for transactions dated on or after 1 April 2026), and cross-ticks against the seller’s Form 26AS or Annual Information Statement to confirm no double-collection. Match-rate improvement of 51 to 88 percent on the seller-wise procurement aggregate reconciliation, combined with an ISO 27001:2022 posture and DPDP Act 2023 aligned data handling for tax-authority-facing filings, is what makes the platform an infrastructure investment for a Tier-1 or Tier-2 Indian cement producer running a hybrid captive-plus-third-party limestone sourcing model across multiple integrated plants — rather than a spreadsheet substitute that leaves the captive-versus-third-party split, the seller-wise aggregate maintenance, the Section 206C(1H) intimation discipline and the Section 393 transition mapping as manual overheads on a plant-CFO-plus-tax-team stack. The commercial pillar for the cement sub-cluster is cement reconciliation software India; the broader authority for the platform is reconciliation software India.

Terra Insight Editorial Team Reconciliation Infrastructure

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Published 27 July 2026

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Navin Krishnan

Managing Director & Founder — Terra Insight

Ex Amazon India · Intuit QuickBooks · Tata nexarc

ISO 27001:2022 Patent Pending Incorporated 2024