Small businesses face temporary credit blockage post-GST cuts

Firms stocking inventory at higher GST rates may end up with stranded input tax credits at reduced rates

- Vaeshnavi Kasthuril & Nehal Chaliawala

The recent cut in goods and services tax (GST) rates on several consumer items is expected to block the working capital for stockists, distributors and retailers holding inventory for a short period, experts said. This is because such firms would have paid GST to their suppliers at a higher rate under the older regime. However, when they sell their inventory to customers, they would receive tax at the newer, lower rate. So their tax liability would be less than the input credit they receive, blocking working capital as credit on their GST ledger.