Indeed, managing job work in a complex manufacturing environment often leads to reconciliation nightmares. Whether you are sending paper for printing, plastic granules for moulding, or steel for fabrication, the traditional “Job Work” route involves heavy compliance under ITC-04 and GST laws.
In this guide, based on insights from Sangeet Gupta, we explore a more efficient alternative: converting Job Work into a Purchase and Sales model to simplify accounting, TDS, and GST workflows.
Initially, job work seems cost-effective. However, it comes with significant administrative burdens:
ITC-04 Filings: Mandatory quarterly reporting of goods sent to and received from job workers.
Material Reconciliation: Tracking “Input vs. Output” ratios and burning/wastage percentages across external vendors.
Valuation Risks: Potential disputes with tax authorities regarding the value of the job work service versus the material value.
Admittedly, shifting to a “Sales” model where you sell raw materials to your vendor and “Purchase” back the finished components can seem like it increases turnover. Fortunately, it simplifies the digital audit trail significantly.
How it Works:
Sales Entry: You sell the raw material (e.g., 15 tons of granules) to the vendor at a market-linked price. Notably, this establishes clear ownership and value.
Purchase Entry: You buy back the finished component. The “Job Work Charges” are essentially built into the price difference.
No ITC-04: Since it is a standard buy-sell transaction, the requirement for ITC-04 reconciliation is eliminated.
Furthermore, the Finance Act introduced Section 194Q, effective from July 1, 2021. Specifically, buyers with a turnover exceeding ₹10 Crores must deduct 0.1% TDS on purchases of goods exceeding ₹50 Lakhs.
By adopting the Purchase-Sales model:
Your accounting for TDS under 194Q becomes straightforward, as it follows standard purchase patterns.
It eliminates the ambiguity of whether a transaction is a “Contract for Service” (194C) or “Purchase of Goods” (194Q).
Ultimately, your choice of model should be supported by a robust ERP. Finsys ERP is already helping over 800 factories globally—from India to Saudi Arabia and Angola—manage these complex transitions.
Key ERP Features for Reconciliation:
Automated TDS 194Q Calculation: Ensuring compliance at the time of booking the purchase voucher.
Dynamic Turnover Reports: Helping you monitor your ₹10 Crore threshold for TDS applicability.
Integrated GST Module: Managing the transition of input tax credit (ITC) seamlessly between sales and purchase cycles.
To conclude, the goal of any system should be to reduce problems and increase speed. By evaluating if your production job work can be converted to a Purchase-Sales model, you can reduce reconciliation time and focus on core manufacturing. Indeed, as GST laws become more synchronized, simplicity in your SOPs will be your greatest competitive advantage.
Watch the Full Technical Session: Production Job Work Suggestions
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Important notes… these TIPS will reduce a lot of pressures and efforts for your team
This are the excerpts of the seminar dt 31-3-2021
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