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Published on:

November 16, 2024

Alankar Mishra

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Basics of GST

GST on Stock Transfer - A Complete Guide

Even within branches, warehouses, or units of the same organization, the supply of goods or stock transfers are taxed under the Goods and Services Tax (GST) provisions in certain scenarios. For multi-branch companies, awareness of the laws and procedures on GST stock transfer or stock movement is critical to promote compliance and enhance the tax position. Adequate descriptions of stock transfers under GST, the provisions governing them and circumstances attracting GST on stock transfer are provided in this guide.

What is a Stock Transfer?

In a stock transfer, goods are transported from one place to another within the same legal entity. Such movements may involve transfer between warehouses, branches or even manufacturing units which may be in different states or in the same state. For example, stock transfers are frequently performed for operational and demand purposes in different geographies. Nonetheless, in GST, stock transfers may be captured under tax even in the absence of a sale.

When Does GST Apply to Stock Transfers?

GST applicability on stock transfers depends on whether the transfer takes place within a state or between states:

Inter-State Stock Transfer (Between States)

Where stock is transferred from one branch or unit to another branch or unit which is located in different states that transaction in this case is an inter-state supply.

Even though there is no consideration for the stock transfer, IGST (Integrated Goods and Services Tax) is applicable for inter-state stock transfer. The GST liability is incurred since the transaction is categorized as a supply under GST.

Intra-State Stock Transfer (Same State)

For stock transfers across locations within the same state as the transfer to an entity under the same GSTIN that is, a branch or unit holding the same certificate of registration, GST is not applicable.

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However, if the stock transfer takes place to another business unit having another GSTIN number then contrary to the former provision even if the stock transfer is within the same state, GST may be chargeable.

Valuation of Goods in Stock Transfers

As stock transference isn’t part of sales or exchange of payment, valuation is crucial in the computation of GST liability. For the purposes of GST, transfers of stock have a valuation for VAT purposes which is defined in Section 15 of the CGST Act as the value of goods, which is a fair price in an open market or price at which those goods are sold to unrelated parties.

Where there is a lack of open market value, the firms may resort to valuing like goods or a quantitative method of valuation.

Input Tax Credit (ITC) on Stock Transfers

Businesses have the upper hand when it comes to GST issues, especially regarding the Input Tax Credit (ITC) Mechanism. This provision essentially enables the business entity to reduce the tax on the outputs by the taxes paid on the inputs and input services which are also stocks transferred to the other units. Here’s how ITC works for stock transfers:

Claiming ITC on inter-state stock transfers:

The GST charged on any stock transfers to other states can be claimed as an ITC in the returns of that respective inter-state branch; this value adds up to the total tax liabilities for the coming sales.

Utilization of ITC in intra-state transfers:

Also, in the case of inter-state movement of stocks which are chargeable under the GST regime, tax credits can also be claimed by the businesses for the GST they incurred in making the transactions. Such credits can in turn be applied against tax liabilities on the outputs of consumables.

Scenarios Illustrating GST on Stock Transfers

Stock Transfer to Branch in Another State

Maharashtra’s head office sends stock to its Karnataka branch: stocks which are taken out from inter-state jurisdiction invoke IGST credit in the hands of the Karnataka branch which the branch can take as ITC.

‍Intra-State Transfer to a Different GST-Registered Unit

Goods are transferred by a company based in Gujarat from its Ahmedabad unit to Vadodara unit which are registered separately for GST. Now GST shall apply since both have different GSTIN and the Vadodara unit will take the ITC.

Transfer Within the Same State & Same GSTIN

Company’s godowns located in Mumbai and Pune both carry the same GST In. Thus an inward from Mumbai to Pune is not a taxable supply because GST does not apply on a distinct supply per se.

Compliance Requirements for Stock Transfers

Documentation

All stock movement should have invoice or delivery challans recording, the goods involved in the transfer with the HSN code, the number and the valuation of such transferred goods.

Where transfers occur across state lines for imports, it is required that an IGST invoice be raised but for the sale of goods or services when the transfer occurs within the same state (if applicable) a CGST/SGST applicable invoice is also required.

E-Way Bill

Where the stock transfer is self-managed and covers a total amount of more than 50,000 rupees, an E-Way bill is required. The E-Way Bill helps in tracking the movement of goods specifically from one place to another as provided in the GST transport law.

GST Returns

Details of the stock transfer shall be billed out ina GSTR-1 return by the sending Branch/unit and later allocated in a GSTR-3B return of the receiving Branch/unit. This process is important for the purpose of monitoring the ITC claims available and consistency.

Benefits of GST Compliance in Stock Transfers

There are quite a few advantages to ensuring that all the expected GST procedures are completed when transferring stock:

‍Easier ITC Utilization: The receiving location can correctly report stock transfers, which allows ITC to be claimed.

‍No Penalties: Proper recording of XD transactions and timely submission of tax returns will avoid penalties for contravention of GST provisions.

‍Improved efficiency of the Supply Chain: Better stock transfer enhances logistics and inventory management.

‍Conclusion

It is mandatory for businesses to calculate their compliance and enhance their ITC claims as a result, they have to understand the GST implications in respect to the stock transfer. The structure of GST has provisions that assist a businesses to pay tax on stock transfer at any single time with Inters and Intra-state transfer rule. It is useful to adhere to standard practices with respect to the retaining rationale for the records, fair evaluation and report submission timelines. By following GST regulations regarding stock transfer, businesses can enhance their internal procedures and comply with the appropriate taxation authorities.

FAQs

1. Is GST chargeable on stock transfer between branches within the same state?

If the branches under the same GSTIN, there is no GST applicable on the transfer of stock within the state. But if they are having separate GSTINs, the transfer may attract GST since it is deemed as a supply because of the GST laws.

2. How is GST calculated on inter-state stock transfers?

When looking at stock transfers across states, GST is computed on the open market price of the goods or at the nearest comparable price with IGST. The value must also be consistent with the rules applicable on valuation under GST for compliance purposes.

3. Can I claim ITC on GST paid for inter-state stock transfers?

Yes. The input tax credit can be applied for on GST in respect of stock transfers undertaken across state lines by the recipient branch/unit. This ITC can be used against tax liabilities on outward supplies that are made subsequently.

4. Is an E-Way Bill required for stock transfers?

Yes, an E way bill is mandatory for transfer of goods like stocks, raw materials, tools etc worth more than ₹50,000. This rule applies regardless of whether goods are being moved between states or within one state and is to keep with provisions of GST on transportation of goods.

‍5. What documentation is needed for stock transfers?

Proper documentation is crucial for GST compliance. It includes:

A GST-compliant invoice (IGST for inter-state, CGST/SGST for intra-state transfers).

A delivery challan for transfers without a sale.

An E-Way Bill, if the value of goods exceeds the threshold.

6. What is the procedure for stock transfer in GST?

The process basically entails the issuance of a GST compliant invoice or delivery challan, generation of an E-Way Bill if necessary, as well as reporting the transfer in GST returns. In cases involving interstate transfer, IGST has to be charged and ITC can be claimed for eligible transactions.

7. What is the impact of stock transfer under GST?

Cross-state stock transfers incur IGST, increasing temporary cash flow requirements until ITC is claimed. To ensure there are no compliance challenges and thus penalties, proper documentation reporting is very vital.

8. What happens if I don’t report stock transfers in my GST returns?

Failure to comprehensively cover stock transfers could lead to some non-compliance issues, which could earn the recipient branch of the stock some penalties and also render the branch ineligible for ITC. This could raise the total tax burden in case of the company.