Stock Transfers Under GST: Rules and Compliance

Stock Transfers Under GST: Legal Insights, Compliance Framework & Practical Considerations

Introduction

Stock transfers—i.e., the movement of goods between different locations of the same organization—are common in multi-location businesses such as retail chains, electronic stores, or warehousing companies. Whether it’s a central warehouse in Hyderabad dispatching products to a Bengaluru showroom, or two warehouses within Karnataka, these internal transfers play a key role in inventory optimization.

But how does GST law view such transfers? Are they treated as a ‘supply’? What documentation is required? Is tax still payable even when there is no actual sale involved? After all, these transfers usually do not involve any monetary transaction or consideration, as they occur within the same legal entity.

This article seeks to demystify stock transfers under GST, highlighting compliance obligations, applicable rules, valuation methods, and potential pitfalls that businesses must guard against.

1. What Is a Stock Transfer in GST Parlance?

Interestingly, the term ‘stock transfer’ does not find an explicit definition in the CGST Act, 2017. It is a legacy term widely used in the erstwhile VAT   regime, where transfers of goods between branches or depots of the same company (without consideration) were treated as branch transfers or stock transfers, often exempt from tax under certain conditions.

Under the GST regime, however, the legal framework is supply-based, not movement-based. So while ‘stock transfer’ remains a popular business term, the taxability depends on whether the transfer occurs between ‘distinct persons’ as per Section 25(4) & (5) of the CGST Act.

In practical terms, a stock transfer refers to the
movement of goods from one unit, branch, or location of a registered entity to another unit of the same legal entity—either within the same state or across states.

Whether such a transfer is taxable under GST depends not on the fact that the goods moved, but on the GST registration status of the locations involved.Lets dive into the details.

2. Legal Framework: Distinct Persons Under GST

The concept of ‘distinct persons’ is central to determining taxability under GST.

Section 25(4) of the CGST Act, 2017 states:

“A person who has obtained or is required to obtain more than one registration, whether in one state or more than one state, shall, in respect of each such registration, be treated as a distinct person.” In a simple terminology registrations obtained under GST with same PAN are called ‘distinct persons’

So, if a company or a business entity  has branches in Hyderabad and Bengaluru  and having   separate GST registrations, with  same PAN,  they are treated as ‘distinct persons’ . Accordingly,  they are treated as separate taxable entities under GST law.

Furthermore, as per Clause 2 of Schedule I of the CGST Act:

“Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business, shall be treated as supply even if made without consideration.”

3. Intra-State Stock Transfers (Same GSTIN)

When stock is transferred within the same state and under the same GSTIN—such as from a warehouse in Hyderabad to a store in Warangal—the transaction is not treated as a supply as along as they are operated under same GST Registration. Because, they are not ‘distinct persons’. Hence, for movement of goods between same GSTIN, no invoice is required to be issued, instead a delivery challn would suffice. However, E-way bill is compulsory   if value exceeds ₹50,000 (Rule 138).

4. Inter-State or Inter-GSTIN Transfers (Taxable)

When stock is moved between units registered under different GSTINs—say from Hyderabad (Telangana) to Bengaluru (Karnataka)—it is treated as a   ,supply, sice these are ‘distinct persons’ . Hence, applicable tax is required to be paid and an  invoice is required to be issued with applicable tax and E-way bill has to be raised based on the value.

5. Valuation of Stock Transfers – Rule 28 of CGST Rules

The tricky part in ‘stock transfer’ is valuation .  GST must be paid on the value of the supply as per Section 15 of the CGST Act, read with Rule 28 of the CGST Rules, which governs valuation of supplies between distinct persons. The Rule prescribes certain permissable methods for arriving at the valuation of the goods supplied.

[(1)] The value of the supply of goods or services or both between distinct persons as specified in sub-sections (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-

Provided that where the goods are intended for further supply as such by the recipient,  the value shall, at the option of the supplier, be an amount equivalent to ninety per cent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person:

 Provided further that where the recipient is eligible for full input tax credit, the value  declared in the invoice shall be deemed to be the open market value of the goods or services.

Assuming that  a business entity  engaged in selling mobile phones    is having  show rooms in Hyderabad and Bengaluru, while Hyderabad is the corporate office. Occasionally, the stock is  transferred from Hyderabad warehouse.  The retail price of Brand X mobile is sold at a price of Rs. 28,000/- in Hyderabad and  the same is sold at a price of Rs 30,000/- in Bengaluru.   Now, the supplier ( Hyderabad -GSTIN) has the following options to declare the value in the invoice.

Note: The third method is based on the second proviso to Rule 28, which allows flexibility where there is no revenue loss to the government due to full ITC claim.

6. Multiple Registrations Within the Same State

Although not common, some companies opt for multiple GST registrations in the same state—for operational reasons, warehouses, or SEZ/non-SEZ separation.

In such cases:

• Each registration is a distinct person.
• Stock transfer between such GSTINs is taxable even with in the state
• All provisions of invoicing, valuation, and documentation remain applicable.

7. ITC Eligibility at Recipient Branch

The recipient can avail the ITC of the tax declared in the invoice, subject to the fulfilment of the conditions specified under Section 16 of CGST Act, 2017.

8. Common mistakes & Compliance Tips

Mistakes  to Avoid:

• Treating taxable inter-GSTIN transfers as exempt;
• Failing to issue tax invoices or generate e-way bills;
• Not following  valuation rules;
• Forgetting to reflect such transfers in GSTR-1 and GSTR-3B

Best Practices:

• Maintain separate delivery challans and tax invoices for clarity
• Regularly reconcile stock transfers with GST returns

Conclusion

The term “stock transfer” may have been a procedural tool in the VAT era, but under GST, its treatment is governed entirely by the concept of supply between distinct persons.

Businesses with multi-state or multi-GSTIN operations must carefully distinguish between non-taxable and taxable transfers. Proper documentation, accurate valuation, and compliance with GST rules not only ensures smooth inventory movement but also protects the input tax credit chain.

Understanding Sections 7,   15 and  25 and Rules 28, 55, and 138, is essential for  navigating stock transfers under GST efficiently  and legally.

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Disclaimer: The author is a Superintendent in Central Taxes. The views expressed in this article are strictly personal.