Summary: The author recounts a personal experience with a bank demanding a stock statement while their firm’s GST number was suspended, not surrendered. This situation led to the stock being transferred to another firm, possibly to improve the recipient firm’s net worth for credit purposes or to facilitate specific GST invoicing rates (e.g., 12% vs. 5%). The article highlights that a business’s net worth, reflected in its balance sheet, influences loan eligibility and credibility, with stock being a key asset. It also touches upon factors banks consider for loans, such as debtor’s turnover ratio and financial statements. Faced with a suspended GST, the author suggests using UPI merchant accounts (Paytm/GPay) linked to personal Aadhaar and PAN for small businesses. This allows for legitimate purchases with GST bills, converting “black money” transactions to “white,” even if margins are initially lower due to GST implications. The author illustrates how managing different GST rates and stock types can lead to informal practices, like selling a 12% GST product at 5% to deplete low-stock items, ultimately advising on options for stock management when GST registration is compromised.
Use Paytm or Gpay merchant accounts to keep your stock legal
The thoughts in this post are solely mine and are subject to some mistakes in information, which is totally based on my experience, analysis and learning.
I recently went to my bank to get my cc limit reactivated. They activated my cc limit and asked for a stock statement from me as a part of their yearly ritual.
Now I don’t have any stock in the books of my firm. It’s because my GST number has been suspended from the past 6-7 months but it is neither surrendered nor active. And my stock was transferred to another firm I knew a while ago.
The most probable reason for transferring this stock to other firm could be that the firm needed better net worth or say better assets or better liabilities of a balance sheet filled with lots of stock.
Also it needed stock at 12% GST that was available with my firm, so that they can make 12% GST invoices to their customers where no more or only few customers can be invoiced with 5% GST invoices because of the lack of stock of both type of Goods.
The total of any side of the balance sheet whether Asset side or liability side reflects the networth of your business. More Stock means better net worth which further means high chance of getting loans or better credibility. The net worth of business reflected through balanced assets and liabilities can also be increased by putting more borrowed capital (Loans) or earned capital (Profits). Thus for being more credible these resources need to be in use, whether buying more stock or whether creating more assets for the business. Loans and surpluses need not to be used for same business but as in sole proprietorship, business entity is itself considered as the person who owns it, the assets can be created outside the business.
Loan is not only procured solely from better CIBIL score. Its always depends on the descrition of the bank or the financial institution by all factors they check about the business.
For eg. 1 criteria can be Debtor’s turnover ratio. It’s good to have better debtor’s turnover ratio which tells how efficiently company collects its cash from its customers. Or It means what is the average number of days in which a company collects the payments from its customers.
Most importantly, other than CIBIL score banks ask for balance sheets and profit and loss statements of current and past few years.
Increase in the networth reflects the profitability of the firm. Let’s say a firm’s business was started with capital of 2 Lacks Rupes borrowed from bank in the form of CC limit to buy stock. At the end of every financial year firms net worth is looked at, by looking at the total of balanced assets and liabilities. If networth is more than the cc limit you started your business with, then you are making Profits, and otherwise you business is making losses.
Net Profit, ITR in business and GST returns for GST holders, are other criterias a financial institutions look into.
Sometimes it’s not in your control at the right time to make right decisions or say the time was not right at that time.
The situation was Firm B surrendered its GST number but it can’t be surrendered due to lack of documents submitted on the portal and hence the number stands suspended but not surrendered. Now the firm can neither make invoices without gst number because GST number is not surrendered yet and nor can it make GST invoices as GST number is neither active.
It’s good to have a merchant business account started with UPI services like Paytm or Gpay where a small business can be started with just a saving account and you can start getting GST bills in that account. It’s true that the margin in this case will be too low because of the GST difference to pay by merchant because it will be added to the price of the product. But this can work in retail business where the margins are higher as compared to other types of businesses.
So both your proprietorship firm and merchant account are linked to the same adhaar card and pan card. Thus while filling your annual ITR you should tell your CA to let the ITR portal know about you paying for GST from the merchant account and thus making your purchases in white money rather than Black money.
People interested to know more about this topic should read my next section of this article.
It’s about how playing with stock can affect the business. Someone I know deals in two types of products i.e Product A @ 5% GST and Product B at 12% GST.
Product B is procured by the firm without a bill and without any GST.
Thus product B is also sold at gst rate of 5% under the same HSN code. By slling the product B at 5 % GST stock of Product A has been reduced to very low level in the book of accounts. So the firm has to buy more of Product A or should either have Product B with 12% gst in their books, so that firm can separately make 12% GST invoices for Product B and thus reducing pressure on low stock of Product A.
Now firm have Goods in stock of Product B that should be sold at 12% GST according to its HSN . But it cant be sold at 12% GST as the stock of product B was procured without a bill, and hence no GST was charged on it.
So above is the case of converting Product B’s Black stock money to White stock money.
In Short:-
You have to select between 4: options of stock :-
Activate the GST registration of firm B and do reverse entries of stock moving from Firm A to firm B.
Suspended GST : Stock can be acquired by Firm B through its merchant account through attached Aadhaar card with all GST purchases.
Keep Transferring stock to another firm: This can only happen if the billed stock is present in the firm B.
Let the GST number be surrendered: all future purchases with a GST invoice can happen.
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Disclaimer: The views and opinions expressed in this article are solely those of the author based on personal experience, understanding, and analysis. While every effort has been made to ensure the accuracy of information, inadvertent errors or omissions may have occurred. This article is intended for general information and should not be construed as professional advice or a substitute for legal, tax, or financial consultation. Readers are advised to consult qualified professionals or refer to applicable laws and regulations before acting on the information provided herein. TaxGuru and the author disclaim any liability for decisions taken based on this article.
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