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One-time tooling cost of ₹5-50 crore is recovered over OEM-committed volume through per-part amortisation, but commercial complexity overlays four ledgers — Section 32 depreciation on capitalised tooling, per-part recovery against contractual volume cap, GST 18% on tooling supply or 28% on bundled part price, and Rule 43 capital-goods ITC amortised over 60 months — plus shortfall risk when actual lifting falls below commitment and end-of-programme buyback or Section 394 scrap TCS at 1%.
Reconcile tooling asset register per programme against per-part amortisation recovery and contractual volume cap, maintain Section 32 depreciation schedule for capitalised tools, decide GST 18% upfront supply vs bundled-in-part-price structure at programme award, run Rule 43 60-month capital-goods ITC amortisation with proportionate reversal for any exempt output, age shortfall exposure when cumulative lifting trails commitment, and close out at programme exit with buyback consideration, residual book value, and Section 394 code 1071 scrap TCS at 1% on disposal.
Tooling asset master per programme with ownership flag (OEM vs supplier), commercial structure flag (upfront vs bundled), capitalised cost, per-part amortisation rate, contractual cumulative volume cap, Section 32 depreciation method, GST treatment flag, Rule 43 60-month ITC schedule, shortfall trigger at 80% of programme life, scrap-disposal workflow with Section 394 code 1071 TCS calculation.
A monthly tooling reconciliation dashboard per programme showing capitalised cost, cumulative parts shipped vs contractual cap, recovery percentage, Section 32 depreciation booked, Rule 43 ITC amortisation booked with any exempt-output reversal, shortfall exposure at programme life remaining, and end-of-programme disposal queue with buyback or scrap action and Section 394 TCS deposit.
A Tier 1 plastics supplier in Chakan launches a new injection-moulding programme for a Maruti Suzuki small-car interior trim part. The dedicated tool costs ₹8 crore — design, steel, tool-shop machining, hardening and trial-out. The commercial agreement commits Maruti to lifting 100,000 units over a 36-month programme; the tool amortisation is recovered at ₹80 per part on each shipped piece. Twenty-eight months in, Maruti has lifted 65,000 units against a cumulative forecast of 78,000 and a contractual commitment of 100,000. The supplier has recovered ₹5.2 crore against an ₹8 crore tool. The tooling amortisation reconciliation India stack now has to track the ₹2.8 crore shortfall exposure, the Section 32 depreciation catch-up, the Rule 43 ITC unwinding, and the disposal decision at programme exit.
Quick reference
| Item | Value |
|---|---|
| Typical tooling cost range | ₹5 lakh (small stamping) to ₹50 crore+ (powertrain dies, transfer presses) |
| Typical per-part amortisation | ₹10 to ₹500 per part depending on tool cost and committed volume |
| Capitalisation rule | Ind AS 16 / AS 10; Section 32 of Income Tax Act for depreciation |
| Section 32 depreciation rate | Typically 15% WDV on plant and machinery (general) |
| GST on tooling supply | 18% (plant and machinery) — separate-supply structure |
| GST on bundled part price | 28% on most auto components, 18% on selected |
| Capital-goods ITC schedule | Rule 43 — amortised over 60 months |
| Scrap disposal TCS | Section 394 code 1071 at 1% (legacy 206C(1)) |
| Service-part obligation | 10-15 years post programme exit (OEM warranty law) |
How is tooling structured commercially in an Indian OEM contract
Two ownership structures dominate the Indian Tier 1 base:
OEM-owned tooling. OEM pays the tool cost as a separate upfront line in the first invoice (or via a tooling purchase order). The tool’s title vests with the OEM; the supplier holds the tool in custody at its plant. The supplier books no tooling asset — the tool is a custodial asset off balance sheet, depreciated and impaired on the OEM’s books. The supplier’s invoice for production parts carries no amortisation line — only the part price.
Supplier-owned tooling. Supplier carries the tool cost on its balance sheet, capitalised under Ind AS 16. The OEM commits a cumulative volume and a per-part amortisation rate. Every shipped piece carries the amortisation as a separate invoice line (or bundled into the part price). The supplier owns the tool’s residual rights and bears the shortfall risk if the OEM under-lifts.
A third hybrid — common at high-cost dies — splits ownership: the OEM funds 60-80% of the tool cost upfront, the supplier funds the balance, and per-part recovery is split between the two. The supplier’s accounting and tax treatment changes line by line in a hybrid structure.
Section 32 vs amortisation over part-life — what is the correct treatment
Income Tax Act treatment under Section 32 follows plant-and-machinery depreciation conventions — typically 15% WDV (Written-Down Value) on general plant and machinery, with possibility of additional depreciation for new plant in eligible sectors. Tax-book depreciation runs on this calendar-time basis irrespective of production volume.
Accounting under Ind AS 16 allows the units-of-production method when the asset’s economic benefit is consumed in proportion to output units — exactly the tooling-amortisation case. A supplier with an ₹8 crore tool committed against 100,000 units can book accounting depreciation at ₹80 per shipped unit (units-of-production), creating a structural difference between book and tax depreciation that flows through deferred tax under Ind AS 12.
Reconciliation must maintain two depreciation schedules per tool: book depreciation by units-of-production tracking actual lifting, and tax depreciation by Section 32 calendar method. The deferred-tax movement per quarter ties book-tax differences for disclosure.
How does shortfall recovery work when the OEM under-lifts
The contractual structure typically gives the supplier one or more of these recoveries when actual lifting trails commitment:
- Take-or-pay clause: OEM pays the residual amortisation on the un-lifted volume at programme exit
- Lump-sum settlement: Negotiated settlement at a discount to the residual book value
- Extension: Programme extended to lift the residual volume at the original amortisation rate
- Successor-programme rollover: Tool repurposed for a successor part with adjusted amortisation
Reconciliation should age shortfall exposure starting at 80% of programme life elapsed — at that threshold, the supplier should have recovered at least 80% of the tool’s amortisable base. Below that recovery rate, a structured shortfall workflow opens (commercial negotiation, escalation, contractual recovery action).
Capital Goods ITC Amortisation Schedule
Generate the Rule 43 60-month ITC amortisation schedule for a tool capitalised by the supplier, including proportionate reversal lines for any exempt-supply output share.
Open the ITC Schedule Tool →Rule 43 capital-goods ITC over 60 months
Rule 43 of the CGST Rules governs ITC on capital goods. When a Tier 1 capitalises a tool and claims ITC on the input GST (steel inputs, tool-shop services, design and engineering, trial-out runs), the entire ITC is admissible upfront, but the credit is treated as a capital-goods ITC subject to amortisation over 60 months (5 years). If during any month a portion of the tool’s output is consumed in exempt supply (export under LUT, supply to an SEZ unit, exempt outward), a proportionate reversal applies under the Rule 43 formula.
For a supplier with mixed domestic and SEZ output running through the same tool, the monthly Rule 43 reversal is non-trivial and must be calculated against the previous month’s turnover ratio. Reconciliation maintains the 60-month schedule per tool, the turnover-ratio file by GSTIN, and the monthly Rule 43 entry for the GSTR-3B return.
Worked example — ₹8 crore injection mould over 100,000-unit commitment
- Tool capitalised cost: ₹8 crore (steel ₹2.4 crore, tool-shop machining ₹3.6 crore, design ₹80 lakh, hardening ₹40 lakh, trial-out ₹80 lakh)
- GST 18% paid on input services: ₹1.44 crore claimed as capital-goods ITC
- Rule 43 amortisation: ₹1.44 crore / 60 = ₹2.4 lakh per month
- Per-part amortisation contractually agreed: ₹80 per part on 100,000 units
- Programme life: 36 months
- Section 32 depreciation (15% WDV, tax book): year 1 ₹1.2 crore, year 2 ₹1.02 crore, year 3 ₹86.7 lakh
- Ind AS 16 book depreciation (units-of-production): tracks ₹80 per shipped unit
- After 28 months — 65,000 units shipped: cumulative recovery ₹5.2 crore, residual amortisable ₹2.8 crore
- Shortfall exposure: ₹2.8 crore against ₹8 crore tool — 35% under-recovered with 8 months remaining
- Action triggered at 80% programme-life elapsed (28.8 months): commercial recovery dialogue with Maruti on take-or-pay
- At programme exit: tool scrapped at ₹40 lakh; Section 394 code 1071 TCS at 1% = ₹40,000 collected from scrap buyer
ACMA tooling conventions
ACMA — the Automotive Component Manufacturers Association of India (ACMA) — publishes commercial-term templates for tooling supply contracts including ownership classification (supplier-owned, OEM-owned, hybrid), volume-commitment clauses, amortisation structures, shortfall settlement conventions, and end-of-programme buyback frameworks. Tier 1 reconciliation systems typically encode ACMA-aligned tool master attributes so accounting, tax and commercial views agree.
What automated reconciliation changes
Manual tooling amortisation reconciliation across 60+ active dies at a multi-OEM Tier 1 is a quarterly spreadsheet exercise where shortfall exposures surface 6-9 months late. Purpose-built reconciliation software India treats each tool as a master record with cumulative-vs-cap tracking, Section 32 / Ind AS 16 dual depreciation schedules, Rule 43 ITC amortisation, and shortfall ageing. TransactIG carries 24+ industry presets including automotive tooling configuration. Customer outcomes include match-rate improvement from 51% to 88%, and tooling-shortfall surfacing moving from month-9 to month-3 of trigger. Build is two-to-four weeks on AWS Mumbai (ISO 27001:2022). For the headline procurement match see three-way matching software India. For the TDS code reference see TDS payment codes 1001-1092 India.