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Impact of GST on Stock Transfer

impact of gst on stock transfer

The inter branch transfers or “branchfers” is a crucial activity for any big business house having branches spread across different geographical locations.  They must transfer goods from one branch to another, across warehouses, depos etc. to bridge the time gap between the demand and supply. This blog explains the impact of GST on transfers that take place between different branches and the pre- GST scenario.

What is Stock Transfer?

Stock transfer is the movement of goods to the next level of supply chain. Stock transfers can be inter-state or intrastate. When the goods are supplied from the branch located in one state to a branch located in different state, it is termed as an Inter-state transaction. And if the goods are supplied within the same state it is termed as an intrastate transaction.

The Need for Stock Transfer

Organizations need to transfer stock for variety of reasons like:

  • Transfer of semi-finished goods from one unit to another.
  • Transfer of finished/ semi-finished goods from godowns/warehouses.
  • Transfer by traders from one unit to another.Any other transfers in the supply chain.

With the introduction of GST there has been an impact on the tax treatment of such stock transfers that take place between branches of the organization. To understand this more let’s first study the pre-GST scenario.

Pre-GST Scenario

In the pre-GST regime, there was a levy of 10% excise duty over and above the production cost for making stock transfers of excisable goods. Also, manufacturer had to furnish form F which makes stock transfers non-taxable under the VAT.

Impact of GST on Stock Transfer

Under the GST regime, the taxable event is the supply of goods. That is the tax is levied on the supply of goods from one taxable person to another taxable person with or without consideration and it includes inter branch transfers as they need to be considered as separate entity. Thus, making the inter branch transfers taxable. Therefore, post the implementation of GST, tax will be levied on such inter branch transfers on the date of transfer and the input tax can be claimed.

Companies from the sectors like FMCG, Pharmaceuticals and where such transfers need to be made on regular basis can find this a challenge and it can act as an obstacle for the SME sector resulting in cash crunch due to increased working capital requirements as the tax will be levied on all such transfers.

However, GST makes the process of stock transfers easy and smooth as the manufacturer need not file different forms with the assessing officer for making the inter branch transfers. This saves the dealers or manufacturers from the additional cost and efforts. But, at the same time it would increase the requirement for working capital as the tax instances would increase. But, at the same time if the stock transfers are done effectively it would ultimately reduce the working capital requirements. Like firms can transfer the stocks only during the high demand so that the rate of liquidation of such stock is also fast.

The implementation of GST, with its many complexities and procedures can take your attention away from doing your business. So, consult the GST experts at EarlyGST at H&R Block India to take care of all your GST needs from registration to filing, so that you can focus your energy on growing your business.

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CA Chetan Shinde
CA Chetan Shinde
Chetan is the Lead Tax Advisor at H&R Block (India) with an experience of almost half a decade in audit and taxation. His professional areas of interest are GST advisory and statutory audit. Apart from taxation, he is passionate about social causes and works extensively towards rural school development and literacy.