Goods And Services Tax

Effect Of Goods And Services Tax On Unsold Inventory Of A Retailer

In Taxation by Akshay BhosaleLeave a Comment

Goods And Services Tax, famously called as GST, has now been implemented from 1st of July, 2017. GST simply means one nation one tax. Earlier, we had to pay service tax, VAT and state taxes etc before buying any product. Now we have to pay only one tax. So, this makes the taxing system more efficient.

Therefore, prices of each and every product have changed after implementation of GST. Due to this, many wholesalers and retailers, who like to stock up products, are now confused as to how much would they lose/gain from the products that they already have purchased before GST. How would they make this transition?

A group of finance ministers of all states has come together to form the GST Council. They have laid down all the GST rules and also made rules for transition and input credit lines. This will help the businessman to make the transition from the current VAT, service tax etc to GST.

These rules clearly state that any amount of credit that is lying in terms of goods or input services under current tax regime can be carried forward under the new GST tax regime as GST credit. This can be done provided that the following conditions are fulfilled:

  1. The taxpayer has to file his last return under the applicable old tax law (VAT etc) and has to declare that the complete stock that is lying along with the input credit.
  2. All these products that are shown as stock in VAT return are taxable under GST. In case such products or services are exempted or non-taxable then the taxpayer will not be allowed to carry forward this credit under GST.
  3. In case if the products that are carried forward along with GST credit are not used in the advancement of business, the taxpayer will be denied the credit of GST. Also, he will have to pay the amount to authorities.

Once all these conditions have been identified, let’s go into the details of what has to be done at the taxpayer’s end.

All Those Taxpayers That Are Registered Under VAT, Services Tax Etc Have To:

  1. They should file the last return under the current tax system with due diligence. You have to make sure that you account your complete stocked products in your return. In case if you miss out on reporting any stock, your credit will not transit from current tax regime and eventually, you will bear the risk of losing this credit.
  2. You must document all the invoices with respect to purchases of the stock under the previous tax regime. This will surely help you to claim 40% of your credit if you miss to include this stock in your last return.

Transition into GST from the existing tax regime requires an extensive due diligence at the taxpayer’s end.

If you have any questions or suggestions, please leave a comment below.

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