Section 393(1) TDS Codes 1001/1023 Electronics Contract Manufacturer Reconciliation

An electronics manufacturing services provider assembling mobile handsets or televisions or refrigerators or laptops on behalf of an original equipment manufacturer brand rarely operates a single-code TDS return. The mid-tier EMS operates two structurally different contract types with the same OEM at the same time — some SKUs where the OEM supplies key components under Section 143 CGST free-issue movement and the EMS invoices only for the value addition (job-work), other SKUs where the OEM places a purchase order for the finished product delivered against the EMS’s own account and the EMS invoices the full finished-goods value (contract manufacturing) — and the Section 393(1) payment code that the OEM’s payables team applies to each invoice must be derived deterministically from the underlying contract type, not from operator judgement at the payment-run moment. This is Section 393 TDS codes 1001 1023 electronics contract manufacturer reconciliation at operating scale, and the reconciliation discipline that keeps the OEM-EMS contract register, the SKU-level bill-of-materials ownership tagging, the invoice-to-payment-code mapping, and the Form 26Q-to-Form 168 credit reflection simultaneously clean is what separates an OEM that clears its Section 40(a)(ia) audit without a disallowance from one that spends the following financial year defending a thirty-percent add-back on its mobile handset assembly-charges expenditure.

Quick reference

The reconciliation in one paragraph

Every OEM-to-EMS invoice in the electronics manufacturing sector carries a Section 393(1) payment code that must be derived from a single reconciliation attribute — the presence or absence of a Section 143 CGST free-issue movement on any input in the SKU-level bill of materials. Where the OEM supplies any input to the EMS under Section 143 (documented by Rule 45 delivery challan and reported in the OEM’s Form ITC-04 quarterly filing), the invoice is a job-work invoice and payment code 1023 (individual or HUF payee at 1 percent) or 1024 (other than individual or HUF payee at 2 percent) applies. Where the EMS sources every input in the bill of materials against its own account and assembles per the OEM’s specification, the invoice is a contract-manufacturing invoice and payment code 1001 (Ind/HUF at 1 percent) or 1002 (other than Ind/HUF at 2 percent) applies. The reconciliation surface has four layers — an OEM-EMS contract register with per-SKU Section 143 free-issue flag captured before the first invoice cycle, an invoice register with per-invoice payment code derived deterministically from the SKU classification and the payee entity type, a Form 26Q filing register at the OEM with the correct payment code per invoice, and a Form 168 or Form 26AS credit reflection at the EMS end tied out invoice-for-invoice against the OEM’s Form 26Q. Variance alerts fire on any invoice-to-code mismatch, contract-to-invoice mismatch, or Form 26Q-to-Form 168 mismatch, and the alert taxonomy is documented in the reconciliation failure-mode analysis for India methodology.

What the scenario looks like in India — the illustrative persona

For the illustrative worked example in this article, take Dixon Padget Electronics as the mobile handset EMS persona — a mid-tier private limited electronics manufacturing services provider running mobile handset assembly across two or three plants in the National Capital Region (Noida, Greater Noida) and Andhra Pradesh (Tirupati) on behalf of two OEM brands, an illustrative Samsung India persona for the premium handset line and an illustrative Xiaomi India persona for the mass-market handset line. The persona is illustrative and the numbers below are illustrative of the reconciliation surface, not a claim about any specific real EMS or OEM’s exact contract structure or invoicing volumes.

Dixon Padget’s Samsung India contract book covers two structurally different SKU families. The premium handset SKU family runs on a Case A (job-work) arrangement — Samsung India supplies the main printed circuit board (main PCB), the AMOLED display module, the lithium-ion battery cell, and the multi-camera module under a Section 143 CGST free-issue movement, all documented by Rule 45 CGST delivery challan and reported in Samsung India’s Form ITC-04 quarterly filing. Dixon Padget sources the balance of the bill of materials (the die-cast chassis, the speaker sub-assembly, the wiring harness, the retail packaging), performs the assembly and testing labour at the Tirupati SEZ plant, returns the finished handsets to Samsung India’s Sriperumbudur distribution warehouse within the Section 143 one-year outer window, and invoices Samsung India for the assembly-charges value only. On each Case A assembly-charges invoice, Samsung India deducts TDS under Section 393(1) payment code 1024 at 2 percent (Dixon Padget is a private limited company — the “other than individual or HUF” branch applies).

The mass-market handset SKU family for the same Samsung India OEM runs on a Case B (contract manufacturing) arrangement — Samsung India places a purchase order for the finished mass-market handset delivered against Dixon Padget’s own account, Dixon Padget sources every component in the bill of materials (main PCB, display, battery, camera, chassis, speaker, wiring harness, packaging) against its own account, assembles the handset per Samsung India’s technical drawings and specifications at the Noida plant, and invoices Samsung India for the full finished-handset value. On each Case B full-finished-handset invoice, Samsung India deducts TDS under Section 393(1) payment code 1002 at 2 percent (Dixon Padget is still a private limited company on the “other than individual or HUF” branch, so the rate is the same 2 percent — but the payment code is 1002, not 1024, and the classification narrative in the Form 26Q filing and the corresponding Form 168 credit reflection at Dixon Padget is structurally different).

The Xiaomi India contract book runs on a similar Case A / Case B mix, with the mass-market handset primarily on Case B (contract manufacturing) and select premium handset SKUs on Case A (job-work with Xiaomi India supplying the main PCB and battery module). Dixon Padget’s payables and receivables reconciliation team therefore runs four active payment-code streams at any given month-close — Samsung Case A (code 1024), Samsung Case B (code 1002), Xiaomi Case A (code 1024), Xiaomi Case B (code 1002) — and the reconciliation discipline is that every one of those four streams must trace cleanly from the SKU-level BOM ownership tag through the invoice register through the OEM’s Form 26Q return filing to Dixon Padget’s Form 168 credit reflection.

The regulatory overlay — Section 393(1) successor to Section 194C, Section 143 CGST free-issue, Circular 13/2006 substantive test

Four regulatory anchors govern the code election.

Section 393(1) of the Income-tax Act 2025 covers payments to contractors and sub-contractors for the carrying out of any work in pursuance of a contract — the successor provision to Section 194C of the 1961 Act. Under the Income-tax Act 2025 payment code table, payments to a contractor for carrying out any work are split into two branches by the underlying arrangement: contract manufacturing (payment codes 1001 for Ind/HUF at 1 percent, 1002 for other than Ind/HUF at 2 percent) where the contract manufacturer sources all inputs against its own account and assembles per the buyer’s specification, and job-work with material supplied by the buyer (payment codes 1023 for Ind/HUF at 1 percent, 1024 for other than Ind/HUF at 2 percent) where the buyer supplies any material to the contract manufacturer under a job-work arrangement. The TDS payment code 1031 Section 393 Sl 8 purchase of goods sibling walks the adjacent payment code 1031 (buyer-side TDS on purchase of goods at 0.1 percent above Rs 50 lakh aggregate threshold), and the payment-code-versus-transaction-type mapping across the 2025 Act table is anchored in the Section 393 payment code finder tool.

Section 143 of the CGST Act 2017 is the substantive determinant of the code branch. Section 143 permits a registered principal to send inputs or capital goods to a job-worker for job-work without payment of GST, subject to the requirement to receive back the processed inputs or capital goods within one year for inputs (three years for capital goods, other than moulds, dies, jigs and fixtures or tools). The movement from principal to job-worker is documented under Rule 45 of the CGST Rules 2017 via a delivery challan, and Form ITC-04 is filed by the principal on a quarterly basis (half-yearly for aggregate turnover up to Rs 5 crore) reporting the goods sent to and received from the job-worker. In the OEM-to-EMS relationship, the presence of a Section 143 CGST free-issue movement is the substantive indicator that the arrangement is a job-work rather than a contract manufacturing arrangement — and the Rule 45 delivery challan trail together with the OEM’s Form ITC-04 filing is the primary evidence of the classification for the Section 393(1) TDS purpose.

CBDT Circular No 13/2006 dated 13-December-2006 clarified the substantive test between contract manufacturing and job-work for the purposes of Section 194C of the 1961 Act — a manufacturer that sources inputs against its own account and assembles per the buyer’s specification is a contract manufacturer, and a manufacturer that receives material from the buyer for processing is a job-worker. The clarification survives into the Income-tax Act 2025 payment code table and continues to inform the code 1001/1002 versus code 1023/1024 election on OEM-to-EMS relationships. The classification is not a stylistic election — it is a substantive test on the underlying arrangement — and the classification must be captured in the OEM-EMS contract register before the first invoice cycle, not derived at the payment-run moment by an operator’s judgement.

The wrong-classification cascade is the fourth regulatory anchor. Section 200A processing at the CPC-TDS can raise a short-deduction demand where the deductor has applied a payment code carrying a lower rate than the correct code. Section 40(a)(ia) of the Income-tax Act (1961 or the 2025 successor) disallows thirty percent of the expenditure at the OEM’s assessment where TDS has not been deducted at the correct rate or under the correct section — and while the codes 1002 (contract manufacturing, other than Ind/HUF) and 1024 (job-work, other than Ind/HUF) both carry the same 2 percent rate, a wrong classification surfaces on Section 40(a)(ia) audit because the classification narrative is a substantive test on the underlying arrangement, not a rate-neutral election. Section 201(1A) charges interest at one percent per month for the period from the date on which TDS was deductible to the date of actual deduction, and at one and one-half percent per month from the date of deduction to the date of payment, applicable to any short-deduction quantum. And the same misclassification cascades into the EMS’s GSTR-1 filing because a job-work invoice must report only the assembly-charges value while a contract-manufacturing invoice must report the full finished-goods value — a mismatch between the TDS classification and the GSTR-1 supply value on the same invoice is a class-of-error signal on both the OEM’s ITC posture under Section 16 CGST and the EMS’s GSTR-1 accuracy.

A worked example — Dixon Padget across Case A and Case B for the same OEM

Illustrative — the following figures represent the operating pattern of a mid-tier mobile handset EMS at the scale of the Dixon Padget persona running Samsung India Case A (job-work at Tirupati) and Case B (contract manufacturing at Noida) simultaneously in a single month. The numbers are illustrative of the reconciliation surface, not a claim about any specific real EMS or OEM’s exact volumes or invoice values.

Consider a month in which Dixon Padget runs the following activity for Samsung India across its two plants.

At the Tirupati plant (Case A, job-work), Samsung India ships 1,50,000 units of premium handset SKUs of components (main PCB, AMOLED display, battery cell, camera module) to Dixon Padget under Section 143 CGST free-issue movement — 4 delivery challan sets under Rule 45 across the month, each covering approximately 37,500 units-worth of components. Dixon Padget’s Tirupati plant sources the balance BOM (chassis, speaker, wiring harness, packaging) against its own account, assembles the handsets, tests and packs them, and returns 1,48,500 finished handsets to Samsung India’s Sriperumbudur distribution warehouse (1,500 units returned to WIP for cosmetic defects, within the Section 143 one-year outer window). Dixon Padget’s assembly-charges invoice to Samsung India for the month covers an illustrative Rs 45 crore of assembly labour, balance-BOM cost, plant overhead, and margin.

At the Noida plant (Case B, contract manufacturing), Samsung India has placed purchase orders for 3,00,000 units of mass-market handset SKUs delivered against Dixon Padget’s own account. Dixon Padget’s Noida plant sources every component in the BOM (main PCB, display, battery, camera, chassis, speaker, wiring harness, packaging) against its own account from its own component supplier network, assembles the handsets per Samsung India’s technical drawings, tests and packs them, and delivers 2,98,200 finished handsets to Samsung India’s Delhi NCR warehouse (1,800 units in WIP or defect at month-end). Dixon Padget’s finished-handset invoice to Samsung India for the month covers an illustrative Rs 285 crore of full finished-handset value.

The Section 393(1) TDS deduction at Samsung India’s payables run for the month works out as follows.

Samsung India’s Form 26Q return filing for the quarter carries the payment code per invoice — code 1024 for the Tirupati assembly-charges invoices and code 1002 for the Noida finished-handset invoices — and Dixon Padget’s Form 168 credit reflection at the EMS end must tie out invoice-for-invoice against the Form 26Q entries. The reconciliation loop closes when the invoice register at both parties, the Form 26Q at Samsung India, and the Form 168 credit at Dixon Padget agree on the classification and the payment code per invoice.

Now consider what happens if Samsung India’s payables team applies the wrong code — for example, applying code 1002 (contract manufacturing) to the Tirupati assembly-charges invoice by mistake (the operator sees “handset assembly” on the invoice narrative and defaults to the contract-manufacturing branch without checking the SKU-level BOM ownership flag). The rate ties out (both 1002 and 1024 are at 2 percent for a company payee), and no Section 200A short-deduction demand triggers on the rate. But the classification narrative on the Form 26Q is wrong — the invoice was for a job-work arrangement, not a contract-manufacturing arrangement — and this is a Section 40(a)(ia) audit exposure because the substantive test between the two branches is a documented CBDT clarification (Circular 13/2006) and any classification that does not match the underlying Section 143 CGST free-issue reality is a mis-deduction that a diligent assessing officer will flag. The corresponding PLI LSEM Rs 40,995 crore mobile handset claim reconciliation Wave 1 cornerstone establishes the broader multi-plant multi-GSTIN reconciliation grammar for the mobile handset segment inside which this TDS classification reconciliation sits, and the PLI Semiconductor Rs 76,000 crore ISM MeitY claim reconciliation Wave 3 cornerstone illustrates the equivalent capex-side and vendor-side reconciliation discipline for the upstream semiconductor manufacturing layer that feeds the same EMS supply chain.

Common reconciliation breakages

Five breakages recur across OEM-EMS Section 393(1) TDS reconciliation cycles.

• SKU-level BOM ownership flag missing from the contract register. The single biggest failure mode is the absence of a per-SKU Section 143 CGST free-issue flag in the OEM-EMS master contract register. Where the contract register captures OEM name, EMS name, plant, product line, and pricing but not the BOM-ownership classification per SKU, the payment-run operator must derive the classification at the invoice-processing moment — a judgement call that a busy payables team will get wrong 3 to 7 percent of the time under volume pressure. The reconciliation fix is to make the SKU-level BOM ownership flag a mandatory field in the contract register captured before the first invoice cycle and inherited automatically to every invoice at the invoice-generation moment.

• Rule 45 delivery challan trail broken or under-documented for Section 143 movements. Where the OEM ships components to the EMS under Section 143 free-issue but the Rule 45 delivery challan register is incomplete or not reconciled to the corresponding physical inventory movement at the EMS receiving dock, the substantive proof of the job-work classification weakens. A Section 143 arrangement that cannot be evidenced by a clean Rule 45 delivery challan trail (and the corresponding Form ITC-04 quarterly reporting entry at the OEM) exposes both parties to a re-characterisation risk on assessment — the assessing officer can treat the arrangement as a contract manufacturing rather than a job-work if the Section 143 documentation trail is not clean. The reconciliation discipline is a three-way tie-out between the OEM’s Rule 45 delivery challan register, the EMS’s inbound goods receipt register, and the OEM’s Form ITC-04 quarterly filing per Section 143 batch.

• Form 26Q payment code selection at the OEM disconnected from the invoice SKU classification. Even where the OEM-EMS contract register carries the SKU-level BOM ownership flag correctly and the invoice register carries the correct payment code, the Form 26Q filing at the OEM’s TDS team can drift — particularly where the TDS team consolidates thousands of invoices per month across multiple deductee classes and applies payment code by deductee rather than by invoice. A single deductee (Dixon Padget) receives both Case A and Case B invoices in the same month and must carry both payment codes on the same Form 26Q entry-set. Where the OEM’s TDS return-preparation tool defaults to a single payment code per deductee, the Case A invoices get mapped to the wrong code (or vice versa) and the reconciliation ties out only at the deductee-level total, not at the invoice-level classification.

• Form 168 credit reflection at the EMS end missing invoice-level payment-code detail. Dixon Padget’s Form 168 (or Form 26AS in the 1961 Act legacy window) credit reflection typically shows the TDS credit per deductor per period per section. Where the credit reflection is aggregated at the deductor-section level rather than at the invoice-payment-code level, Dixon Padget’s own reconciliation team cannot verify at the invoice level whether Samsung India applied code 1024 or code 1002 to a specific invoice — the reconciliation is at the section-total level only. This obscures the classification narrative and defers any correction until the Form 26Q amendment or the assessment cycle at the OEM’s end. The reconciliation playbook monthly close pillar sets out the monthly-cadence Form 26Q-to-Form 168 tie-out that catches these classification drifts within the same month rather than at the assessment cycle.

• GSTR-1 outward supplies filing at the EMS mis-stated for Case A job-work invoices. For a Case A job-work invoice, Dixon Padget’s GSTR-1 outward supplies filing must show only the assembly-charges value — not the OEM-supplied component value. Where the EMS’s GST return-preparation team incorrectly grosses up the invoice to include the OEM-supplied component value in the outward supplies (typically because the ERP invoicing module carries a “notional” full-BOM value for internal costing purposes and that notional value flows into the GSTR-1 by default), the EMS over-declares its outward supplies for the period. The over-declaration attracts a corresponding over-liability on the EMS’s own GST payment and can trigger an ITC over-statement exposure for the OEM downstream. The reconciliation discipline is a per-invoice cross-reference between the Section 393(1) payment code on the Form 26Q entry and the outward supplies value on the GSTR-1 entry — a Case A invoice with code 1024 must show only the assembly-charges value on GSTR-1, and any gross-up is a class-of-error signal. The 57 human errors and the detection envelope trust asset situates this specific error class within the broader taxonomy of process failures, and the equivalent buyer-side vendor withholding discipline for a pharma OEM is walked in Section 194Q TDS on API raw-material purchase in pharma.

How a reconciliation platform handles this

A purpose-built electronics reconciliation platform ingests the OEM-EMS master contract register with per-SKU Section 143 CGST free-issue flag and per-SKU BOM-ownership tagging, the SKU-level bill-of-materials register with component-by-component ownership flag, the Rule 45 delivery challan register for OEM-to-EMS component movements and the corresponding Form ITC-04 quarterly filing extract, the invoice register from both the OEM’s accounts payable and the EMS’s accounts receivable with per-invoice Section 393(1) payment code derived deterministically from the SKU classification and the payee entity type, the Form 26Q filing extract from the OEM with payment code per invoice, the Form 168 (or Form 26AS in the 1961 Act legacy window) credit reflection at the EMS end tied out invoice-for-invoice, and the GSTR-1 outward supplies filing at the EMS with per-invoice supply value cross-referenced to the Section 393(1) payment code — and produces a payment-code-derived TDS pack that closes the loop from the SKU classification through the invoice register through the Form 26Q filing to the Form 168 credit reflection with the GSTR-1 outward supplies cross-check on the same invoice. Variance alerts fire on invoice-to-code mismatch (a Case A SKU invoice with code 1002 applied instead of 1024, or vice versa), contract-to-invoice mismatch (an invoice for a SKU that is not in the contract register with a definitive BOM-ownership classification), Form 26Q-to-Form 168 mismatch (a Form 168 credit reflection at the EMS that does not tie out invoice-for-invoice to the OEM’s Form 26Q entry), and GSTR-1 gross-up (a Case A invoice with a full-BOM value on the EMS’s GSTR-1 outward supplies rather than the assembly-charges value). The match-rate improvement from 51 to 88 percent on the SKU-to-payment-code binding, the Form 26Q-to-Form 168 tie-out, and the GSTR-1 cross-reference — combined with an ISO 27001:2022 posture, AWS Mumbai residency, and DPDP Act 2023 aligned data handling — is what makes the platform an infrastructure investment for a mid-tier EMS running multi-OEM, multi-plant, multi-contract-type activity rather than a spreadsheet substitute. The commercial pillar for the sub-cluster is Electronics reconciliation software India; the broader authority is reconciliation software India.

The five FAQs below address the operational questions payables leads at OEMs and controllers at EMS entities ask most often when running the Section 393(1) code 1001/1002 versus code 1023/1024 boundary across a live multi-plant OEM-EMS relationship.

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 22 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

ISO 27001:2022 Patent Pending Incorporated 2024