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Close Monitoring of Working Capital Utilisation in GST Regime

Jun 01, 2017

As we know Working Capital Requirement in any business is the most important area of effective running of Business . In any business unnecessary Blockage & erosion of Working Capital is strictly monitored with the introduction of GST regime & with changes of some procedural aspect in GST compliance , there are some care need to be taken in GST Regime for proper planning & Utilisation of Working Capital

Extended use of Input Tax Credit

At present regime Input Tax Credit is not allowed with expenses incurred not related to production eg any tax paid on business overheads are not allowed .

But in GST Regime , the concept of Input Tax Credit is broadened to include any input or services “ used or intended to be used or linked to your taxable Output . In GST Regime businesses will be allowed to take credit of Input Tax paid on all paid Tax provided it has been procured through Registered Business .

Thus here is the area where Cost of Production will reduce at the same time saving of Working Capital Requirement due to larger use of Input Tax Credit while making Tax payment

Improved Sourcing Management

In GST regime Input Tax Credit will be dependent on Supplier’s compliance also , it may happen that Input Tax Credit has been availed but the supplier of goods & services has not complied with Statutory Requirement all Inputs relating to that vendor will be reversed , and any less tax paid has to be paid with Penal Interest causing erosion of unprecedented Working Capital

So Sourcing has to be very rigid & disciplined in selecting discilplined venders to save any probable loss from erosion of excess tax payment due to reversal

Monitoring of Contractual Obligations with Project Management in Manufacturing Business

In GST regime Any Advance Payment Received Tax is levied on the days of Receipt of Advance , so while forecasting Working Capital Requirement the Contracts need to be studied & Tax flow of Advance Receipts should be considered

Stock Transfer to Branches to be monitored with Liquidation Plans

Stock Transfers need to be monitored very effectively since in GST Regime Tax has to be paid in case of Stock Transfer to Branches immediatly on Transfer , Input Tax Credit is available on time of liquidation from that branch , so unnecessary stock transfer need to be avoided otherwise Working Capital will be blocked till it is not credited at the time of Liquidation

Set Off Process for Service Sector Business need to planned very effectively

In Service Tax Regime since Registration is done as Centrally , setoff can be done easily but in GST Regime Registration is Statewise , a Service provider need to register in a state where he makes outward supply of services . There is restriction of Set off CGST + SGST of a state as a result chances of blocking of Working Capital in form of Tax Payment

Balance Carry Forward Monitoring in Time of Transition to GST Regime

The Closing Balance of Cenvat & Input VAT reflected in last Return ( prior to GST ) will be carried forward as CGST and SGST input Tax Credit , So special care must be taken on following

Ø All Purchases has been accounted in Books of Accounts

Ø All Credits has been accounted in Books of Accounts

Ø Debit Notes & Credit Notes has been settled in Reflected Balances


This is now very important for any Business Organisation in this Transition period & Post Transition that Blocking of Working Capital do not occur in form of Tax Payment & Non Availability of Input Tax Credit

This article was first published on & LinkedIn by Tapesh Mukherjee

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