Your Business May Be Profitable. But Is It Protected?

One key person, one major customer, one critical supplier, one technology platform—or one unresolved family dispute can expose a weakness that years of growth and profitability may have concealed.

By CA Surekha S Ahuja

A business can report rising turnover, healthy margins and a strong order book—and still be dangerously vulnerable.

What happens if its key decision-maker is suddenly unavailable, its largest customer stops ordering, a critical supplier fails, its systems are compromised or a family disagreement paralyses decisions?

These are not merely operational inconveniences. They can threaten cash flow, customer confidence, contractual commitments and, ultimately, the value of the enterprise.

The real risk is often not visible in the balance sheet. It lies in the dependencies the business has allowed to become indispensable.

1. A global reminder: no business should depend on one individual

NVIDIA offers a timely illustration of why leadership continuity and institutional resilience matter.

On 8 November 2026, NVIDIA announced that its Board was initiating an independent investigation following reports that founder and CEO Jensen Huang had been targeted by a foreign intelligence effort. The Board stated that it had no reason to believe national security or NVIDIA secrets had been compromised.

On 12 November 2026, NVIDIA announced Huang's resignation as President, CEO and a Board member, effective immediately. CFO Colette Kress was appointed Interim CEO, and the Board began searching for a permanent successor. Harvey C. Jones was appointed the company's first-ever Chair of the Board, separating the Chair role from the CEO role. NVIDIA stated that operations, customer commitments and its product roadmap were expected to continue without interruption.

The announcements do not establish that the investigation caused the resignation. The business lesson is broader: leadership transitions require institutional capability, clear authority, an experienced second line and continuity arrangements.

A company should not have to discover its succession plan on the day it needs one.

Official sources: NVIDIA Board statement, 8 November 2026 | NVIDIA CEO transition announcement, 12 November 2026

2. Identify the weakest links in your business

Promoters should examine whether the enterprise has become excessively dependent on any one person, relationship, asset or system.

Critical dependency	What can go wrong	What needs protection
Promoter or key executive	Decisions and relationships stop functioning	Delegation, succession and documented authority
Major customer	Sudden loss of revenue or delayed collections	Customer diversification and receivables
Critical supplier	Production or delivery disruption	Alternative suppliers and inventory cover
Cash and banking	Profits exist but liquidity is inadequate	Cash forecasting and funding arrangements
Technology and cyber systems	Data loss, fraud or operational shutdown	Access controls, backups and recovery
Family ownership	Disputes block decisions or succession	Ownership, management and exit arrangements
Compliance	Missed obligations create financial and legal exposure	Responsibility, review and evidence

The objective is not to eliminate every dependency. It is to identify which ones could seriously damage the business, understand the consequences and establish a workable alternative.

3. The promoter risk: can the business function without you?

In many owner-managed enterprises, the promoter remains the principal salesperson, negotiator, financier, approver and problem-solver.

This may work during the early years. As the business grows, it can become a structural weakness.

If only the promoter can approve major purchases, negotiate with banks, resolve customer disputes or authorise exceptional payments, the organisation may have employees but lack the authority to operate independently.

Practical safeguards

• Delegate financial and operational authority through written limits.

• Develop a capable second line for finance, operations, sales and compliance.

• Document key customer relationships, contracts, banking arrangements and critical processes.

• Ensure authorised access to essential records and systems.

• Identify who can take urgent decisions if the promoter is unavailable.

The 15-day absence test: If the promoter cannot attend work or respond to calls for 15 days, can the business continue to deliver, collect money, pay employees and meet statutory obligations?

If not, the enterprise has a continuity problem—not merely a delegation problem.

4. Customer and supplier concentration: protect the commercial lifeline

A large customer may contribute substantially to turnover, while a single supplier may provide a component essential to production. Both can create hidden vulnerabilities.

The risk cannot be assessed merely by looking at percentages. A customer contributing 30% of revenue may be manageable if alternative demand exists. A supplier accounting for only 10% of purchases may be critical if no replacement is available.

Promoters should examine:

• Top five customers by revenue, contribution margin and outstanding receivables.

• Customer-specific inventory, tooling and production capacity.

• Contract termination, price revision and payment terms.

• Critical suppliers, alternative sources and switching time.

• Inventory cover and the time needed to qualify replacement suppliers.

• The financial impact of losing a major customer or supplier.

Practical safeguards: Maintain a customer-concentration dashboard, identify alternative suppliers for critical inputs and periodically test whether those alternatives can actually deliver. Diversification should be based on commercial risk, not an arbitrary percentage.

5. Profit is not protection: cash flow determines survival

A profitable business can still face a liquidity crisis because money is blocked in receivables, inventory, advances or capital expenditure.

A promoter should insist on a rolling 13-week cash-flow forecast, covering:

• Expected collections and realistic payment dates.

• Supplier payments, payroll and statutory dues.

• Interest, loan instalments and committed capital expenditure.

• Available bank limits, actual utilisation and drawing-power constraints.

• Minimum cash required to maintain essential operations.

Run a combined stress test: the largest customer delays payment, inventory moves slowly and a critical supplier demands an advance. Can the business still meet payroll, taxes, debt obligations and essential operating costs?

A sanctioned bank limit is not the same as available liquidity. A profitable order book is not a substitute for cash.

Practical safeguards: Establish a minimum liquidity threshold, identify early-warning triggers and decide in advance who can approve emergency funding or defer discretionary expenditure.

6. AI, technology and cybersecurity: efficiency must not create new vulnerabilities

AI and digital systems can improve productivity, forecasting and decision-making. But excessive dependence on technology without adequate controls can expose the business to data leakage, incorrect decisions, fraud and operational disruption.

Risk	Essential safeguard
Confidential information entered into AI tools	Approved tools and data-use restrictions
AI-generated financial or legal conclusions	Human review and source verification
Voice or email impersonation	Independent verification of payment instructions
AI agents connected to ERP or financial workflows	Restricted permissions and approval limits
Cloud or software platform failure	Data portability, protected backups and recovery plans
Cyberattack or unauthorised access	Multi-factor authentication and access monitoring

India's AI Governance Guidelines, released by MeitY on 5 November 2025, adopt a principle-based approach to safe, inclusive and responsible AI innovation. They emphasise human-centricity and the use of existing legislation wherever possible. They do not replace applicable legal obligations, including those relating to data protection, information technology and intellectual property.

Official MeitY announcement, 5 November 2025

Every business should have an AI-use policy, role-based access, protected backups and a tested system-restoration process. Supplier bank-detail changes should always be independently verified.

A backup that has never been tested is an assumption, not a recovery plan.

The governing principle: AI should make the business more capable, not less accountable.

7. Family governance and compliance: prevent avoidable disputes and defaults

In a family-owned enterprise, continuity can be threatened by unresolved questions of ownership, management, remuneration, succession and inheritance.

Equal ownership does not necessarily mean identical management roles, equal remuneration or unanimous control over every business decision. These matters should be addressed separately.

A workable family-business framework should clarify:

• Who owns the business and in what proportion.

• Who manages it and how performance is assessed.

• How family members working in the business are remunerated.

• How succession, exit and valuation will be handled.

• How disagreements will be resolved without paralysing operations.

Depending on the structure, this may require a family constitution, shareholders' agreement, appropriate Articles of Association, family settlement and succession documents.

Compliance responsibilities also need clear ownership. Income tax and TDS, GST, Companies Act filings, labour obligations, licences, contracts and regulatory notices should each have an identified person responsible, a due date and an independent review mechanism.

A compliance calendar without accountability is not an effective control.

8. The promoter's business-protection test

Ask the management team to answer these six questions with evidence, not reassurance.

1. Can the business function for 15 days without the promoter?

2. What happens if the largest customer stops ordering or delays payment for 60 days?

3. Can production continue if the most critical supplier fails tomorrow?

4. Can the business meet essential obligations during a 30-day collection disruption?

5. Can operations be restored if the principal technology system becomes unavailable?

6. Can important decisions still be taken if the principal family stakeholders disagree?

Any answer that depends on "we will manage somehow" is an unresolved risk.

9. A practical 30-day protection programme

Timeline	Action	Expected outcome
Days 1–7	Identify critical people, customers, suppliers, systems and obligations	Business dependency map
Days 8–14	Quantify concentration, cash exposure and replacement time	Risk and liquidity assessment
Days 15–21	Test promoter absence, customer loss, supplier disruption and system failure	Documented stress-test findings
Days 22–30	Assign responsibility, approve alternatives and establish review mechanisms	Action plan with accountable owners

Review the key indicators monthly: customer concentration, overdue receivables, critical suppliers without alternatives, projected cash balance, key roles without trained backups, tested system recovery and unresolved compliance or governance issues.

The exercise should not become another document prepared and forgotten. Every identified risk needs an owner, a deadline and evidence that the corrective action works.

CA Surekha S Ahuja's Perspective

Growth creates opportunity. Profitability measures performance. But neither, by itself, proves that a business is resilient.

A promoter's responsibility extends beyond building a successful enterprise. It includes ensuring that the enterprise can withstand the absence of a key person, the loss of a major relationship, a technology disruption, a liquidity shock or a difficult family decision.

The strongest link may create the opportunity. The weakest link determines how much of that opportunity survives.

The real strength of an enterprise is not how successfully it operates when everything goes right. It is how effectively it responds when something important goes wrong.

Indian Companies Can Now List More Than Equity Shares Overseas: Opportunity, Eligibility and the FEMA Catch

By CA Surekha S Ahuja

An Indian company may soon have more flexibility in raising overseas capital than it had under the original direct-listing framework. The Ministry of Corporate Affairs has widened the framework to cover not only equity shares but also convertible debentures and preference shares. It has also relaxed certain eligibility barriers, including the restriction on companies having negative net worth.

The change is significant. But there is one important qualification: a wider permission under company law does not automatically mean that every newly covered instrument can be issued, held and traded under the existing FEMA direct-listing framework.

That distinction will determine how quickly companies can actually use this opportunity.

1. What has changed from November 2026?

Through Notification G.S.R. 968(E) dated 3 November 2026, the MCA notified the Companies (Listing of Equity Instruments in Permissible Jurisdictions) Amendment Rules, 2026, amending the 2024 Rules. The amendment came into force on 3 November 2026, the date of publication in the Official Gazette.

The most important change is the replacement of the word “shares” with “instruments” throughout the 2024 Rules.

The new definition of equity instruments expressly includes:

• Equity shares

• Convertible debentures

• Preference shares

This is a material expansion. A company can now examine overseas listing structures involving instruments that combine capital raising with defined conversion, dividend or other rights, subject to the applicable regulatory framework.

However, the amendment does not create an unrestricted right to list any security on any foreign stock exchange. The framework continues to operate through specified permissible jurisdictions and exchanges.

2. Five changes companies should understand

Area	Earlier position	Amended position
Instruments covered	Equity shares	Equity shares, convertible debentures and preference shares
Negative net worth	Disqualification	Permitted subject to at least 75% of net offer being allotted to QIBs
Creditor default	Two-year period after making good the default	Period reduced to more than six months
Annual filing default	Specified default under sections 92 or 137 could disqualify	Disqualification applies where the specified default has not been made good
Form LEAP-1	Earlier prescribed form	Substituted form with expanded disclosures and attachments

The amendment also extends the framework to unlisted public companies in the IFSC jurisdiction, subject to the International Financial Services Centres Authority Act, 2019 and regulations framed under it.

Negative net worth is no longer an absolute barrier

This is one of the most commercially relevant changes.

A company with negative net worth may now become eligible to issue equity instruments for overseas listing if it undertakes to allot at least 75% of the net offer to Qualified Institutional Buyers (QIBs), in accordance with the applicable securities-market regulations in the permissible jurisdiction.

This could provide an avenue for companies that have valuable businesses, technology, brands or growth prospects but have accumulated losses or negative net worth.

The relaxation is not a waiver of financial scrutiny. The QIB allocation condition places greater emphasis on institutional participation and the applicable disclosure and investor-protection framework.

Defaults: a shorter route back to eligibility

Where a company has made good the specified payment default to a bank, public financial institution, non-convertible debenture holder or other secured creditor, the relevant waiting period has been reduced from two years to more than six months.

Similarly, the annual filing disqualification under sections 92 and 137 is now linked to a default that has not been made good.

A company should verify the precise nature of the default and its regularisation before proceeding. Merely initiating corrective filings should not be assumed to resolve every eligibility issue.

3. The FEMA catch: the most important issue before planning an issue

The MCA amendment is a company-law development. The existing FEMA direct-listing framework is separately contained in Rule 34 and Schedule XI of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

Here, the distinction is important.

The NDI Rules already define equity instruments to include equity shares, fully and mandatorily convertible debentures and fully and mandatorily convertible preference shares, subject to the prescribed conditions. Optionally or partly convertible instruments are treated differently.

However, Rule 34 and Schedule XI specifically provide the direct-listing route for equity shares of Indian public companies. The MCA's wider definition under the Companies Rules does not, by itself, amend that FEMA scheme or extend its listing permission to every newly covered instrument.

Consequently:

• Equity shares can be examined under the existing direct-listing framework, subject to its conditions.

• Fully and mandatorily convertible debentures and preference shares may qualify as equity instruments under FEMA, but that classification alone does not establish permission to list them under the existing direct-listing scheme.

• Optionally or partly convertible instruments require separate examination and cannot simply be treated as equity instruments for this purpose.

The practical position: before announcing or launching an overseas issue of preference shares or convertible debentures, a company should obtain instrument-specific FEMA, securities-law and exchange advice. Regulatory alignment or clarification may be necessary for the expanded instrument categories to become fully operational.

Which exchanges are presently covered?

The existing direct-listing framework identifies the following international exchanges in GIFT IFSC:

1. India International Exchange (India INX)

2. NSE International Exchange (NSE IX)

The amendment should therefore not be read as a general permission to list directly on Nasdaq, NYSE, London Stock Exchange or any other overseas exchange.

Other FEMA conditions also continue to matter, including foreign investment limits, sectoral caps, entry routes, beneficial ownership checks and restrictions concerning investors from countries sharing a land border with India. The existing scheme also excludes a person resident in India from being a permissible holder. These conditions are not displaced by the MCA amendment.

4. Who can use the expanded framework?

The relaxation does not remove the basic eligibility conditions under Rule 5 of the 2024 Rules. Before committing resources to an overseas listing, a company should examine whether it:

• Is not a Section 8 company or a Nidhi.

• Is not a company limited by guarantee having share capital.

• Has no outstanding public deposits accepted under Chapter V of the Companies Act.

• Does not have negative net worth or, if it does, gives the prescribed undertaking for at least 75% QIB allotment.

• Has made good the relevant creditor default and allowed more than six months to elapse.

• Has made good the specified annual filing defaults under sections 92 and 137.

• Is not hit by the relevant winding-up or insolvency proceedings covered by Rule 5.

The legal test must be applied to the company's actual status and the precise wording of Rule 5. Not every pending legal or insolvency-related matter should be treated as an automatic disqualification without examining the statutory condition.

In addition, the company must satisfy the FEMA framework, applicable IFSCA requirements, exchange rules and disclosure obligations.

5. Form LEAP-1: compliance becomes more disclosure-driven

The MCA has substituted Form LEAP-1, used for submission of the prospectus with the Registrar under section 23(3) of the Companies Act.

The revised form seeks additional information, including relevant approval and prospectus-submission dates, details of inspection, investigation or inquiry, prescribed attachments and certification by a practising professional.

This is not merely a procedural change. It reinforces the need for a company to maintain a complete and consistent record of its approvals, offer documents, regulatory status and disclosures.

The board, CFO, company secretary and statutory advisers should coordinate the information before the filing is made.

6. Is the timing favourable?

The global IPO market provides a useful backdrop. EY's Q3 2026 global IPO update reported more than US$95 billion in proceeds during the quarter, taking year-to-date proceeds to around US$290 billion, compared with US$114 billion in the corresponding period of 2025.

This indicates renewed global fund-raising activity, but it does not guarantee demand for every Indian issuer or every instrument.

For Indian companies, GIFT IFSC offers an opportunity to explore international investor access within an Indian regulatory setting. The actual success of the expanded framework will depend on investor participation, liquidity, valuation, research coverage and, importantly, alignment between company law, FEMA and securities-market regulations.

The immediate opportunity is to prepare and evaluate structures. The scale of actual issuance will depend on how quickly the regulatory framework becomes operational for the newly covered instruments.

CA S.Ahuja Perspective

The amendment is a meaningful step towards giving Indian companies greater flexibility in accessing international capital. The relaxation for negative-net-worth companies and the inclusion of preference shares and convertible debentures could widen the range of businesses able to explore this route.

But the most important question is not simply whether an Indian company is eligible under the Companies Rules. It is whether the proposed instrument can also pass the FEMA, IFSCA, exchange, investor-eligibility and tax tests.

A regulatory door may have opened under company law, but the transaction must still be able to pass through the FEMA framework.

Promoters should not begin with the question, “Can we list overseas?” They should begin with a more useful one:

Which instrument can we lawfully issue, to which investors, on which exchange, at what cost, and with what long-term dilution and compliance consequences?

That is the difference between an overseas listing opportunity and a workable capital-raising strategy.

Gold at Home: The Supreme Court’s Real Message

 The 500–250–100 Gram Guidance, Ownership, Source and Tax Risks

By CA Surekha S Ahuja

The Supreme Court’s order dated 2 November 2026 in State of Bihar v. Phulpari Kumari, Criminal Appeal No. 5212 of 2026, has an important message for Indian households holding substantial gold jewellery:

Being permitted to retain gold is not the same as being able to explain its ownership and source when questioned by an authority.

The familiar 500 grams for a married woman, 250 grams for an unmarried woman and 100 grams for a male member are not statutory limits on gold ownership. They are guidelines for non-seizure of jewellery during an Income-tax search.

The Supreme Court has not withdrawn these guidelines. It has clarified that they cannot, by themselves, answer a disproportionate-assets allegation.

The appropriate response is not panic, sale of jewellery or retrospective paperwork. It is to establish actual ownership, reconstruct acquisition history and preserve credible evidence.

1. What did the Supreme Court actually decide?

The case concerned a former Child Development Project Officer in Bihar against whom a disproportionate-assets FIR was registered on 11 May 2015. A chargesheet followed on 29 July 2020, and cognizance was taken on 28 January 2021.

The Patna High Court had quashed the proceedings on 14 May 2026, relying on CBDT Instruction No. 1916 dated 11 May 1994 and the Ministry of Finance press release dated 1 December 2016. The jewellery held by the respondent and her unmarried daughter was stated to be approximately 646.400 grams, below their combined 750-gram benchmark.

The Supreme Court set aside the High Court's order and restored the proceedings.

The Court held that the non-seizure guidance does not, by itself, explain assets in a disproportionate-assets prosecution. The accused must address the assets in relation to known lawful sources of income.

Importantly, the Supreme Court did not convict the respondent or finally determine the source or ownership of the jewellery. The proceedings were restored, and the respondent remains entitled to raise other legally available grounds before the trial court.

The ruling rejects reliance on permissible quantity as a complete defence. It does not reject genuine explanations based on purchase, gifts, marriage or inheritance.

2. Three legal tests—three different consequences

The first professional step is to identify the proceeding involved. The same jewellery can raise three distinct legal questions.

Proceeding	What is examined	What needs to be addressed
Income-tax search	Whether jewellery should be seized and what assets are found	Search guidelines, inventory, ownership and circumstances of possession
Income-tax assessment	Whether acquisition and source are satisfactorily explained	Financial capacity, source, records and applicable tax provisions
Disproportionate-assets prosecution	Whether assets attributable to a public servant are disproportionate to known lawful income during the relevant period	Opening assets, income, expenditure, additions, liabilities, ownership and source

Non-seizure is not acceptance of the source. An assessment finding does not automatically establish a criminal offence. And assets found in a family home cannot automatically be attributed to one family member without examining actual ownership and the applicable legal test.

3. What the 500–250–100 gram guidance protects

CBDT Instruction No. 1916 dated 11 May 1994 provides that, in the case of a person not assessed to wealth-tax, gold jewellery and ornaments up to the following quantities need not ordinarily be seized:

Family member	Quantity
Married woman	500 grams
Unmarried woman	250 grams
Male member	100 grams

The authorised officer may exclude a larger quantity, considering family status, community customs and other circumstances.

The Ministry of Finance press release dated 1 December 2016 clarified that there is no limit on holding gold jewellery or ornaments acquired from explained sources, including inheritance.

The practical position is:

• These quantities are not ownership ceilings.

• Exceeding them does not automatically make gold unexplained or taxable.

• Jewellery within them is not automatically accepted as having an explained source.

• Jewellery not seized may still be inventorised and examined during assessment.

The instruction also requires a detailed inventory of jewellery found during a search.

The guidance concerns jewellery and ornaments. It should not be extended mechanically to gold bars, coins or bullion, which require separate examination of their nature, ownership and source.

4. Start with ownership—not the number of grams

Before calculating the family’s total gold, identify the actual owner of each item.

Jewellery may be purchased by one person, gifted to another, inherited from a parent or held in a common locker. Custody and ownership are not the same.

For example, jewellery belonging to a daughter does not automatically become her father's property because it is kept in his locker. Similarly, jewellery held by a husband may belong to his wife.

The ownership conclusion must follow the facts and evidence, not a convenient family declaration.

Prepare an ownership and source register

Particulars	Information to record
Identification	Item description, photograph and item number
Physical details	Gross weight, net gold weight, purity and stones, where ascertainable
Ownership and custody	Actual owner, person holding it and location
Acquisition	Approximate date or period
Source	Purchase, marriage gift, other gift, inheritance, ancestral holding or exchange
Previous owner / donor	Name and relationship, wherever known
Evidence	Invoice, bank record, family record, photograph, will, confirmation or other document
Subsequent movement	Transfer, exchange, remaking, gift or disposal

Maintain separate ownership and custody fields. A common locker does not establish common ownership.

5. Reconcile the movement of gold over time

A present-day list of jewellery is insufficient where holdings have accumulated over several decades.

Prepare an owner-wise reconciliation:

Particulars	Weight (grams)
Opening holding
Purchases
Marriage and other gifts
Inheritance
Other additions
Less: sales and transfers
Less: old gold surrendered in exchange
Closing holding

For a relevant check period, distinguish jewellery already held at the beginning from acquisitions during the period.

Pay particular attention to exchange and remaking. If old jewellery is surrendered to make new ornaments, the old weight must be reconciled; otherwise, the same gold may be counted twice.

For disproportionate-assets cases, the opening position and each addition must be aligned with the investigating agency's check period.

The objective is to explain the movement of the asset, not merely produce a closing balance.

6. Match each claimed source with appropriate evidence

The absence of an old invoice does not automatically make jewellery unexplained. But a general statement that all jewellery is ancestral or received at marriage may also be inadequate.

Claimed source	Evidence to seek
Purchase	Invoice, payment trail, bank withdrawal, jeweller records and financial capacity
Marriage gifts	Wedding photographs, gift lists, donor details and family records
Other gifts	Donor identity, relationship, occasion, confirmation and financial capacity
Inheritance	Death certificate, will, succession documents and previous ownership records
Ancestral jewellery	Earlier photographs, family records and evidence of continuity
Exchange or remaking	Old jewellery details, exchange slips, jeweller records and weight reconciliation

Evidence has limits:

• Photographs may support the existence of jewellery, but ordinarily do not establish exact weight, purity, ownership or cost.

• A present-day valuation establishes weight, purity and value on the valuation date; it does not establish acquisition source.

• Donor confirmations are stronger when supported by identity, relationship, occasion and financial capacity.

• A declaration prepared today may record a genuine historical account, but it is not contemporaneous evidence and must never be backdated.

• An old invoice is relevant, but subsequent ownership transfers may still need to be established.

Where evidence is unavailable, record the gap honestly. Never manufacture invoices, retrospective transactions or donor confirmations.

7. Income-tax exposure: identify the correct tax year

For tax years governed by the Income-tax Act, 2025, Section 104 deals with unexplained assets. Jewellery is expressly included in the definition of an asset.

Where the statutory conditions are satisfied and the assessee offers no explanation, or an explanation found unsatisfactory, for the nature and source of the asset or the expenditure incurred on it, the relevant value or excess may be deemed income in the tax year specified by the provision.

For earlier tax years, the corresponding provisions of the Income-tax Act, 1961 must be examined. Depending on the facts, these may include:

• Section 69A — unexplained money, bullion, jewellery or other valuable article.

• Section 69B — amount of investment not fully disclosed in books.

The Income-tax Act, 2025 came into force on 1 April 2026. Its provisions should not be applied retrospectively merely because a search or enquiry takes place after that date. The applicable transition and savings provisions must also be considered.

Special tax rate under Section 195

For income falling within Sections 102 to 106 of the 2025 Act, Section 195 provides a special tax rate of 30%, substituted for 60% with effect from 1 April 2026.

Applicable surcharge and cess must be considered separately. Section 195(2) does not permit deductions, allowances or loss set-off against the covered income.

This rate does not apply merely because a family holds old jewellery. The statutory conditions for treating the asset as unexplained must first be satisfied.

Penalty exposure under Section 439

Section 439 provides for:

• 50% of the tax payable on under-reported income; and

• 200% of the tax payable on under-reported income where the case falls within the statutory definition of misreporting.

The Finance Act, 2026 inserted Section 439(11)(g), specifically including income referred to in Section 195(1)(b) within the listed misreporting cases.

This creates a significant penalty risk where income is determined by the Assessing Officer under Section 195(1)(b). The penalty is calculated with reference to the tax payable on under-reported income—not 200% of the jewellery's value.

A professional must therefore examine the nature of the proposed addition, the applicable clause of Section 195, the disclosure position and the statutory penalty provisions before responding to a notice.

An evidentiary gap should not be casually equated with deliberate misreporting; equally, the specific statutory penalty exposure under Section 439 must not be overlooked.

8. Disproportionate-assets cases require a separate financial reconstruction

For a public servant facing a disproportionate-assets allegation, a family gold register is only one part of the exercise.

The relevant analysis must cover the check period:

Component	What must be examined
Opening assets	Assets existing at the start, including jewellery
Income	Salary and other established lawful receipts
Additions	Purchases, gifts, inheritance and other acquisitions
Expenditure	Household, education, property, travel and other outgoings
Liabilities	Genuine loans and outstanding obligations
Closing assets	Assets at the end, including jewellery and other valuables
Family ownership	Assets independently belonging to spouse, children or other family members
Valuation	Basis, date and consistency of the investigating agency's valuation

For each jewellery item, test whether it existed before the check period, was acquired during it, was inherited or gifted, or belongs independently to another family member.

Do not automatically attribute all jewellery found in a family home to the public servant. Equally, a bare assertion of ownership by a relative is insufficient where the surrounding facts suggest otherwise. Actual ownership, source of funds and beneficial interest must be examined.

The applicable Prevention of Corruption Act provisions must be identified by reference to the alleged offence and relevant period. In Phulpari Kumari, the FIR was registered in 2015 and the prosecution proceeded under the then-applicable Section 13(1)(e) read with Section 13(2). The amended framework should not be mechanically substituted without examining its applicability.

9. The professional response: four essential workpapers

A CA advising a family with substantial gold should go beyond obtaining a valuation or preparing a declaration.

Workpaper 1 — Ownership and custody

Identify each owner, the person holding the jewellery, its location and the basis of ownership. Resolve inconsistencies.

Workpaper 2 — Acquisition and movement reconciliation

Record opening holdings, purchases, gifts, inheritance, exchanges, transfers and closing holdings. Separate pre-existing assets from acquisitions during the relevant period.

Workpaper 3 — Source and evidence matrix

For each item or category, record the claimed source, supporting evidence, missing records and strength of the explanation. Distinguish contemporaneous documents from later reconstruction.

Workpaper 4 — Legal exposure memorandum

Identify the proceeding, relevant tax year, applicable law, valuation issues, potential tax and penalty consequences and, where relevant, the disproportionate-assets check period.

Classify the holdings:

Classification	Appropriate action
Supported	Preserve and organise the evidence
Reconstructable	Prepare a transparent historical explanation and identify corroboration
High risk	Obtain specialist tax and legal advice before making representations

This is more useful than labelling the entire family holding either explained or unexplained.

10. If a search, notice or investigation has already commenced

During a search:

• Cooperate with authorised officers.

• Check the inventory for description, weight, purity, valuation basis and place of discovery.

• Point out factual discrepancies and request contemporaneous recording.

• Retain copies of the inventory and relevant documents.

• Do not conceal, move or transfer jewellery after learning of an impending search.

After the search or receipt of a notice:

1. Reconcile the official inventory with the family's records.

2. Establish actual ownership separately from custody.

3. Prepare source-wise explanations.

4. Reconcile old jewellery exchanged or remade.

5. Identify the relevant tax year and statutory provisions.

6. Coordinate the tax response with criminal-law advice if a vigilance or disproportionate-assets investigation exists.

Avoid hurried oral estimates and generic declarations covering jewellery with different owners and sources. Distinguish documented facts, historical facts reconstructed from family records and matters that cannot now be verified.

11. What families should not do

• Do not sell legitimate jewellery merely because holdings exceed the 500–250–100 gram guidance.

• Do not transfer jewellery on paper to relatives to fit the benchmarks.

• Do not create retrospective invoices or backdated declarations.

• Do not describe all jewellery as ancestral without examining its history.

• Do not treat a valuation report as proof of source.

• Do not assume that jewellery in a family locker belongs to the locker holder.

• Do not mistake non-seizure for final acceptance by the Income-tax Department.

The objective is to preserve a truthful and defensible record—not to rearrange facts to fit a numerical limit.

CA S.Ahuja Perspective

The Supreme Court has not restricted how much gold an Indian family may own. It has clarified that the non-seizure benchmarks cannot substitute for explaining the source of assets when the law requires an explanation.

The right professional response is to establish ownership, reconcile the movement of gold, assess the evidence and apply the law relevant to the tax year and proceeding.

The strongest protection is not that the gold falls within a prescribed quantity. It is a credible, item-wise and evidence-supported explanation of who owns it and how it came into the family.

Do not panic. Do not manufacture records. Do not rely on the quantity alone. Build the evidence before it is called for.

Lost Export Orders, Shrinking Margins: Government Support Indian Exporters Must Actually Use in 2026

 By CA Surekha S Ahuja

An exporter can have a good product, a confirmed overseas buyer and a competitive quotation—and still lose the order.

The reasons often lie beyond the selling price: expensive working capital, delayed collections, inland freight, international certification, compliance costs and geopolitical risks.

The Government's Export Promotion Mission (EPM), along with other export-support measures, seeks to address these pressures. But exporters need to understand what each scheme actually provides, how to qualify and, most importantly, how to receive the benefit.

1. Export Promotion Mission: Financial support and market access

With an approved outlay of ₹25,060 crore for FY 2025–26 to FY 2030–31, EPM operates through two sub-schemes:

• NIRYAT PROTSAHAN: Export credit, interest subvention, factoring, credit guarantees and other financial interventions.

• NIRYAT DISHA: Certification, logistics, market access, trade intelligence and overseas fulfilment support.

The support is not one universal subsidy. Each intervention has separate eligibility conditions, notified products, limits and procedures.

2. Interest subvention: 2.75%—and the bank must pass it on

Eligible MSME exporters can receive 2.75% annual interest subvention on qualifying pre-shipment and post-shipment rupee export credit, subject to a ceiling of ₹50 lakh per exporter per financial year.

A critical point is often overlooked: the bank is required to pass on the eligible benefit upfront. It subsequently claims reimbursement from the implementing agency. The bank's receipt of reimbursement is not a precondition for passing on the benefit.

However, an existing export-credit account does not automatically qualify.

The essential conditions are:

• Eligible MSME status, Udyam registration and IEC.

• Export of products covered by the notified positive list of six-digit HSN codes.

• Eligible rupee export-credit disbursement.

• Prescribed UIN generated and submitted to the bank on or before disbursement.

Credit disbursed before 2 January 2026 is outside the scheme. A UIN generated after disbursement cannot cure the omission. On renewal with a top-up, only the additional qualifying disbursement is treated as fresh credit exposure; the old outstanding balance does not automatically become eligible. The benefit also ceases from the date the account becomes an NPA.

What should an exporter do?

Generate the UIN before or on the date of fresh disbursement, submit it formally to the bank, retain acknowledgement and verify the interest statement. If the benefit is not passed on despite eligibility, seek the bank's written explanation and escalate through its grievance mechanism.

The implementing-agency role shifted from RBI to EXIM Bank with effect from 1 April 2026. This changes the reimbursement channel, not the bank's upfront pass-through obligation.

3. Factoring: Convert export receivables into working capital

Instead of waiting 60–120 days for an overseas buyer to pay, an exporter can use factoring to obtain finance against eligible export receivables.

EPM provides 2.75% subvention on eligible factoring costs, subject to a ceiling of ₹50 lakh per IEC.

Under DGFT Trade Notice No. 32/2026–27 dated 26 October 2026, the earlier UIN requirement for factoring has been removed. The factor uploads transaction details; the exporter verifies them and submits the consolidated claim through the prescribed process.

Eligible transactions are covered from 20 February 2026, subject to the notified conditions.

Factoring support can be combined with eligible interest subvention, but the same invoice or interest cost cannot be claimed twice.

4. Credit guarantees and e-commerce finance

For exporters unable to offer adequate collateral, EPM provides guarantee coverage to eligible lending institutions:

Enterprise	Guarantee coverage
Micro and Small	85%
Medium	65%

The maximum eligible credit limit is ₹10 crore per exporter, subject to scheme conditions.

This is a lender-side guarantee, not an 85% or 65% cash subsidy to the exporter. The borrower remains liable for repayment.

For eligible MSMEs exporting through e-commerce channels, the EXIM Bank framework also provides:

• Direct e-commerce credit with guarantee coverage up to 90%, capped at ₹50 lakh.

• Overseas inventory credit with guarantee coverage up to 75%, capped at ₹5 crore.

• Interest subvention of 2.75%, subject to an annual ceiling of ₹15 lakh per applicant.

Eligibility and facility approval conditions apply.

5. TRACE and LIFT: Recover eligible certification and transport costs

Two interventions can directly address costs that weaken export margins.

Intervention	Support	Key condition
TRACE – Testing and certification	60% of eligible cost; 75% for Priority Positive List certifications; annual ceiling ₹25 lakh	Notified certification and prescribed prior Intent-to-Claim
LIFT – Inland logistics	Up to 30% of eligible inland transport cost; annual ceiling ₹20 lakh	Notified products, districts, routes and prior Intent-to-Claim

These are reimbursement-based interventions. The exporter initially incurs the eligible expenditure and must follow the prescribed approval and claim process.

LIFT is not a blanket reimbursement of international ocean freight or every logistics expense. TRACE does not cover every certification obtained overseas.

6. RoDTEP and RELIEF: Remission and risk protection

RoDTEP: DGFT Notification No. 41/2026–27 dated 30 September 2026 extended the scheme up to 31 December 2026 for eligible DTA, Advance Authorisation, SEZ and EOU exports. It remits eligible embedded duties and taxes through transferable electronic scrips; it is not a cash grant.

RELIEF: Component II provides 95% risk coverage under specified ECGC arrangements for eligible shipments affected by the West Asia situation. DGFT Notification No. 37/2026–27 dated 30 September 2026 extended the relevant timelines up to 31 March 2027. This is specified risk protection, not a general reimbursement of freight increases or export losses.

7. Market access: Finding the next buyer

Reducing prices is not always the solution to lost orders. Exporters may need new markets, new buyers and credible international exposure.

EPM's Market Access Support facilitates eligible trade fairs, buyer-seller meets, trade delegations and reverse buyer-seller meets. Assistance is proposal- and institution-based; it is not an automatic reimbursement of every exporter's travel or exhibition expenses.

The relevant Export Promotion Council, Commodity Board or approved institution should be approached for eligible events and participation conditions.

8. What does the exporter actually receive?

This distinction should guide every exporter's financial planning.

Support	Actual benefit
Interest subvention	Upfront interest benefit through the bank
Factoring support	Subvention on eligible factoring cost
Credit guarantee	Protection to lender; not cash to exporter
TRACE / LIFT	Reimbursement after eligible expenditure
RoDTEP	Transferable duty-remission scrip
RELIEF	Specified ECGC risk coverage
Market Access Support	Approved institutional or event assistance

An exporter should never treat an announced allocation, a guarantee or a pending reimbursement as money already received.

9. Exporter's action checklist

Before relying on any scheme, the exporter should:

1. Verify IEC, Udyam and eligible HSN classification.

2. Check the relevant scheme's notified product, location and expenditure conditions.

3. Generate the UIN before or on fresh eligible credit disbursement.

4. Obtain written bank confirmation and verify the interest benefit in the loan statement.

5. Complete prior Intent-to-Claim requirements for TRACE and LIFT.

6. Track factor-uploaded transactions and submit factoring claims within the prescribed timeline.

7. Maintain invoices, transport records, shipping documents and claim acknowledgements.

8. Record separately the benefit eligible, claimed and actually received.

CA S.Ahuja Perspective

Export competitiveness is not determined by the selling price alone. It is determined by what remains after financing, logistics, compliance, currency and collection risks have been absorbed.

The Government has created several useful support mechanisms, but the route to each benefit is different. An exporter must identify the right intervention, satisfy its conditions and follow through until the benefit is actually secured.

The interest-subvention scheme illustrates the practical gap. The bank is required to pass on the eligible benefit upfront, but an existing banking relationship does not guarantee automatic implementation. The exporter must meet the UIN and disbursement conditions and verify the interest account.

Government support is useful only when the exporter is eligible, completes the prescribed process and actually receives the financial benefit.

Used-Car Dealers Under GST: Circular 265 on ITC for Repairs, Rent and Spares—and the Separate Test for Capital Goods

By CA Surekha S Ahuja

A used-car dealer may pay GST on the prescribed margin instead of the full selling price. However, where the applicable margin-scheme notification requires non-availment of ITC, the dealer cannot claim credit on the used vehicle purchased for resale.

Does this restriction also deny ITC on spare parts, repairs, rent, advertising, software, laptops, air-conditioners and other business assets?

No. The restriction on the used vehicle does not automatically extend to every business expense of the dealership.

CBIC Circular No. 265/11/2026-GST dated 28 October 2026 clarifies that the ITC restriction under the specified used-vehicle margin-scheme notifications does not apply to eligible inputs other than the used vehicles themselves and to input services.

Capital goods, however, require a separate examination under the CGST Act. This distinction is important for every used-car dealer reviewing ITC eligibility and earlier reversals.

1. What does Circular 265 actually clarify?

Issued under Section 168(1) of the CGST Act, 2017, following the 57th GST Council meeting held on 8 October 2026, the circular addresses the scope of the non-availment condition under the relevant margin-scheme notifications.

It clarifies that the restriction does not extend to ITC on:

• Spare parts and other inputs used in the dealership.

• Repairs and maintenance services.

• Technology services and software.

• Showroom and office rent.

• Marketing and advertising services.

The practical position is:

Purchase or expenditure	ITC position
Used vehicle purchased for resale under the margin scheme	Restricted where the notification's non-availment condition applies
Spare parts and other business inputs	Eligible, subject to Sections 16 and 17
Repairs and maintenance services	Eligible, subject to Sections 16 and 17, including Section 17(5)(ab), where relevant
Rent, software and technology services	Eligible, subject to statutory conditions
Advertising and marketing	Eligible, subject to statutory conditions
Laptops, computers, ACs and workshop machinery	Independently examine under Sections 16 and 17

The circular removes the blanket denial of dealership ITC. It does not grant unconditional credit on every purchase.

2. Margin valuation: Do not confuse Rule 32(5) with the special motor-vehicle notification

Rule 32(5) of the CGST Rules provides a valuation mechanism for second-hand goods sold as such or after minor processing that does not change their nature, where ITC has not been availed on their purchase.

The value is generally the difference between the selling price and purchase price. A negative difference is ignored.

However, old and used motor vehicles covered by Notification No. 08/2018-Central Tax (Rate), as amended, have a specific valuation formula:

• Where depreciation under Section 32 of the Income-tax Act has been claimed: consideration received on sale less the depreciated value of the vehicle on the date of supply.

• In other cases: selling price less purchase price.

• Negative margin: ignored.

For example:

Particulars	Amount
Purchase price	Rs 8,00,000
Selling price	Rs 9,50,000
Margin, where depreciation has not been claimed	Rs 1,50,000

Repair expenditure does not reduce this prescribed margin. It must be examined separately for ITC eligibility.

The dealer must also verify that the vehicle and transaction satisfy the relevant notification conditions, including the non-availment condition on the vehicle itself. Rule 32(5) should not be mechanically substituted for the specific motor-vehicle notification formula.

3. What is the GST rate on qualifying used vehicles?

The normal GST rate structure for new motor vehicles changed with effect from 22 September 2025. Certain categories fall under an 18% schedule and specified larger or luxury vehicles under a 40% schedule.

These normal vehicle rates must not be confused with the special margin-scheme rate.

The relevant amendments include:

• Notification No. 04/2025-Central Tax (Rate) and Notification No. 04/2025-Integrated Tax (Rate), both dated 16 January 2025.

• Notification No. 12/2025-Central Tax (Rate) and Notification No. 12/2025-Integrated Tax (Rate), both dated 17 September 2025, effective from 22 September 2025.

For qualifying supplies covered by the amended used-vehicle margin-scheme notifications, the GST rate is 18% on the prescribed margin:

Nature of supply	GST
Intra-State supply	9% CGST + 9% SGST
Inter-State supply	18% IGST

Compensation Cess must be examined separately. Serial No. 42A of Notification No. 01/2018-Compensation Cess (Rate), as amended, provides a nil rate for qualifying old and used motor vehicles subject to its conditions, including non-availment of specified credit on the vehicle.

Therefore, a dealer should not automatically apply the normal 40% rate or Compensation Cess to a qualifying margin-scheme transaction.

4. Repairs, spares and business expenses: Where ITC can be claimed

Section 16(1) permits ITC on goods and services used or intended to be used in the course or furtherance of business, subject to the statutory conditions.

Section 16(2) requires compliance with the prescribed documentary, receipt, supplier-reporting, tax-payment and return-filing conditions.

Accordingly, ITC on spare parts, workshop consumables, rent, software, advertising and other eligible business expenses can be claimed even though the dealership sells used vehicles under the margin scheme.

One important qualification: Section 17(5)(ab) restricts credit on specified servicing, repair and maintenance services relating to motor vehicles covered by Section 17(5)(a) and (aa), subject to statutory exceptions.

Vehicles held for further taxable supply must be distinguished from vehicles used for staff or management transport. The further-supply exception under Section 17(5)(a) is relevant to the former. The corresponding restriction on repair services must be examined under Section 17(5)(ab).

Circular 265 does not override these restrictions.

5. Capital goods: Laptops, ACs and machinery need a separate test

Circular 265 expressly clarifies the position for inputs other than the used vehicles and for input services. It does not expressly grant a separate entitlement for capital goods.

Capital goods are separately defined under Section 2(19), while Section 2(59) excludes them from the definition of inputs.

Their ITC eligibility must therefore be examined independently under Sections 16 and 17.

Asset	General position
Laptops, desktops and servers	Generally eligible for business use
Printers and networking equipment	Generally eligible
Standalone movable ACs	Generally eligible, subject to facts
CCTV and security equipment	Generally eligible, subject to installation and use
Workshop machinery and diagnostic equipment	Generally eligible
Civil construction and structural works	Examine restrictions under Section 17(5)(c) and (d)

Section 16(3) prohibits ITC where depreciation has been claimed on the GST component of the asset's cost under the Income-tax Act.

Building-related expenditure requires particular care. Section 17(5)(c) and (d) restrict specified works contract and construction-related credits, subject to the statutory definition and exceptions for plant and machinery.

Further, Section 124 of the Finance Act, 2025 substituted “plant or machinery” with “plant and machinery” in Section 17(5)(d), with effect deemed from 1 July 2017. The amendment was brought into force from 1 October 2025.

The amendment must be read with Chief Commissioner of CGST v. Safari Retreats Pvt. Ltd., 2024 INSC 756. Dealers should not rely on the earlier wording or assume that the functionality test alone establishes eligibility under the amended provision.

A standalone movable AC and an integrated building HVAC installation may therefore require different treatment. Invoices, asset registers, technical specifications and installation records should be maintained.

6. Demo vehicles: A different ITC situation

CBIC Circular No. 231/25/2024-GST dated 10 September 2024 clarifies ITC on demo vehicles used by authorised dealers for trial runs and demonstrations.

Section 17(5)(a) generally blocks ITC on specified passenger motor vehicles, subject to exceptions, including use for making further supply of such vehicles.

The circular recognises that an authorised dealer using demo vehicles to promote further supply of similar vehicles can fall within this exception, subject to the facts.

However, the position is different where the dealer merely provides marketing or facilitation services for a manufacturer and is not itself making further supply of the vehicles.

Capitalisation of a demo vehicle does not, by itself, deny ITC. But Section 16(3) must be respected: depreciation cannot be claimed on the GST component where ITC is taken.

On subsequent sale of a demo vehicle on which ITC has been availed, Section 18(6), read with Rule 44(6), requires payment of the higher of:

1. ITC taken, reduced by 5 percentage points for every quarter or part thereof from the date of invoice; or

2. Tax on the transaction value.

A demo vehicle on which ITC has been claimed must not automatically be brought under the used-vehicle margin scheme. The notification's non-availment condition must first be examined.

7. Nil margin, common credit and earlier-period reversals

A nil or negative margin does not automatically make the supply exempt. It remains a taxable supply under the applicable margin valuation mechanism.

Consequently, a dealer should not reverse common ITC merely because a vehicle is sold at nil margin. Section 17(2) and Rules 42 and 43 continue to apply where there are actual exempt supplies or non-business use.

The Kerala AAR ruling in Goexotic Plus91 Motors Private Limited, KER/42/2025 dated 11 December 2025, is relevant. It considered ITC on direct expenses, common business expenses and capital goods of a second-hand motor-vehicle dealer and treated margin-scheme sales as taxable supplies.

The ruling binds only the applicant and the concerned or jurisdictional officer under Section 103. It may be persuasive elsewhere but is not a universally binding precedent.

Can earlier ITC reversals be reviewed?

Yes, but Circular 265 does not automatically reopen concluded assessments or create an unconditional refund entitlement.

Dealers should review:

• Whether credit was reversed only because the entire dealership was considered ineligible.

• Whether the underlying goods or services satisfy Sections 16 and 17.

• Whether any specific blocked-credit provision applies.

• Whether the time limit under Section 16(4) or a statutory exception under Sections 16(5) or 16(6) is available.

• Whether the matter has attained finality and what remedy remains legally available.

In Suchitra Components Ltd. v. CCE, Guntur, 2007 (208) ELT 321 (SC), the Supreme Court recognised the retrospective application of beneficial circulars in the circumstances considered by it.

Circular 265 supports the interpretation that the margin-scheme restriction does not extend to other eligible inputs and input services. However, statutory time limits, procedural requirements, final orders and refund conditions continue to apply.

8. Practical action checklist for used-car dealers

Area	Immediate action
Used vehicle purchases	Maintain vehicle-wise purchase records and evidence of non-availment of ITC
Margin computation	Apply the correct notification formula, including depreciation treatment where relevant
GST and cess	Verify the applicable margin-scheme rate and nil cess conditions
Spares and repairs	Identify eligible inputs and services; test Section 17(5)(ab)
Rent and advertising	Verify business use, invoices and Section 16 conditions
Capital goods	Maintain a separate asset-wise ITC register
Demo vehicles	Preserve authorisation, demonstration records and subsequent-sale computation
Common credit	Apply Rules 42 and 43 wherever required
Earlier reversals	Review the legal basis, limitation and available remedy

CA S.Ahuja Perspective

The real issue for a used-car dealer is not whether ITC can be claimed on the vehicle purchased under the margin scheme. Where the notification requires non-availment, it cannot.

The real issue is whether that restriction has been wrongly extended to the entire dealership.

Circular 265 draws an important boundary: the restriction on the used vehicle does not automatically travel to other inputs and input services. Capital goods must be tested independently under the Act.

Dealers should now review their ITC records, identify reversals based only on a blanket interpretation, separate eligible credits from blocked credits and document the legal basis for each category.

The vehicle may be under the margin scheme. The entire dealership is not outside the ITC framework.

That is the distinction Circular 265 brings into focus—and the distinction every used-car dealer should build into its GST controls.

GST TDS Under Section 51: The Complete 2026 Guide to Scrap Purchases, RCM, Registration and Compliance

 By CA Surekha S Ahuja

From 1 November 2026, GST TDS has been extended to additional categories of specified goods, while corresponding reverse-charge and registration changes affect suppliers and buyers. Businesses dealing in used cooking oil, plastic scrap, tyre scrap, metal scrap and electronic waste must now review their contracts, vendor registration, tax deduction and monthly compliance processes.

The change is more significant than an increase in the list of goods subject to TDS.

A registered buyer purchasing specified goods from a registered supplier may have to deduct GST TDS. A purchase from an unregistered supplier may instead attract reverse charge. At the same time, suppliers of the specified goods can no longer rely on the earlier special registration exemption merely because their supplies were taxable under reverse charge.

The correct treatment depends on the goods, supplier's registration status, recipient's status, contract value and place of supply. Applying TDS indiscriminately to every scrap purchase is as incorrect as overlooking the reverse-charge liability on purchases from unregistered suppliers.

1. What changed from 1 November 2026?

Three notifications dated 27 October 2026 form the principal framework for the new compliance requirements.

Notification	What it changes	Effective date
Notification No. 07/2026-Central Tax	Expands the notified category of recipients required to deduct TDS under Section 51 to specified goods purchased from registered suppliers	1 November 2026
Notification No. 04/2026-Central Tax (Rate)	Adds specified goods purchased from unregistered suppliers by registered persons to the reverse-charge framework	1 November 2026
Notification No. 06/2026-Central Tax	Restricts the special registration exemption under Notification No. 5/2017-Central Tax for persons engaged in supplying the specified goods	1 November 2026

The notifications operate independently and must not be confused:

• Registered supplier to registered buyer: TDS under Section 51 may apply.

• Unregistered supplier to registered buyer: Reverse charge may apply under Section 9(3), subject to the notified entry.

• Supplier dealing in specified goods: The special registration exemption under Notification No. 5/2017-Central Tax is no longer available for the specified goods; the supplier must reassess registration under the applicable provisions.

Metal scrap was already covered by the earlier 2024 framework. The 2026 change extends the notified treatment to additional categories.

2. Which goods are covered?

Notification No. 07/2026-Central Tax substitutes clause (d) of Notification No. 50/2018-Central Tax.

The notified goods are:

Goods	Customs Tariff classification
Used cooking oil	Heading 1518
Waste and scrap of plastics	Heading 3915
Waste and scrap of tyres	Heading 4004
Metal scrap	Chapters 72 to 81
Electrical and electronics waste and scrap	Heading 8549

The notified category covers a registered person receiving any of these goods from another registered person.

Metal scrap under Chapters 72 to 81 was already included through Notification No. 25/2024-Central Tax dated 9 October 2024. The 2026 amendment adds the other four categories.

Classification is the starting point. Commercial descriptions such as waste, scrap, used material or recyclable goods are not sufficient by themselves. The actual nature of the goods and their correct Customs Tariff classification must support the conclusion.

For example, plastic waste falling under heading 3915 is covered. A product described merely as plastic residue or recycled plastic should not automatically be treated as covered without checking its classification.

3. When is GST TDS required? Apply these five tests

Test 1: Is the recipient a notified deductor?

Notification No. 07/2026-Central Tax covers any registered person receiving the specified goods from another registered person.

Consequently, the obligation is not confined to Government departments, public-sector undertakings or Government agencies. A private registered business purchasing the notified goods from another registered business must also examine Section 51.

The recipient's registration status and the nature of the goods must be established before deciding the deduction obligation.

Test 2: Is the supplier registered?

The registration status of the supplier determines which tax mechanism must be examined.

Supplier	Recipient	Applicable treatment
Registered	Registered	Examine TDS under Section 51
Unregistered	Registered	Examine RCM under Notification No. 04/2026-Central Tax (Rate) and corresponding applicable tax notification
Registered	Buyer outside the notified category	Section 51 TDS does not arise merely because the goods are scrap

Do not deduct TDS from an unregistered supplier merely because the goods fall under a notified tariff heading. The recipient must instead examine the applicable reverse-charge entry.

Test 3: Does the total taxable value under the contract exceed Rs 2,50,000?

Section 51(1) prescribes the threshold where the total value of taxable supply under a contract exceeds Rs 2,50,000.

The test is contract-wise, not invoice-wise.

Total taxable value under the contract	TDS position
Rs 2,00,000	No TDS
Rs 2,50,000	No TDS
Rs 2,50,001	Threshold crossed
Rs 5,00,000	TDS applies, subject to the other statutory conditions

The word used in Section 51 is exceeds. A contract of exactly Rs 2,50,000 does not cross the threshold.

Practical implications:

• Examine the total taxable value under the contract, not each invoice independently.

• Aggregate supplies made under the same contract.

• Review master agreements, purchase orders, rate contracts, amendments and linked supply arrangements.

• Do not split invoices or purchase orders artificially to avoid the threshold.

• Where the contract value is already above Rs 2,50,000, the deduction obligation is relevant from the first payment or credit under that contract, subject to the other conditions.

• Where the contract is subsequently amended and its aggregate value crosses the threshold, document the amendment date, earlier credits and subsequent payment chronology. Do not assume that completed earlier payments can automatically be treated in the same manner as subsequent payments.

The threshold is not a per-invoice exemption.

Test 4: Exclude GST and cess from the TDS calculation

The explanation to Section 51(1) expressly excludes Central Tax, State Tax, Union Territory Tax, Integrated Tax and cess indicated in the invoice from the value of supply for TDS purposes.

TDS is calculated on the taxable value, not the gross invoice amount inclusive of GST.

Example: Delhi buyer purchasing plastic scrap from a Delhi supplier

Assume the contract value exceeds Rs 2,50,000 and the other statutory conditions are satisfied.

Particulars	Amount
Taxable value	Rs 4,00,000
CGST @ 9%	Rs 36,000
SGST @ 9%	Rs 36,000
Total invoice value	Rs 4,72,000
GST TDS @ 2% on taxable value	Rs 8,000
Net payment to supplier	Rs 4,64,000

The buyer deducts Rs 8,000, not 2% of Rs 4,72,000.

Test 5: Apply the place-of-supply exclusion

The proviso to Section 51(1) provides an important exception.

No TDS is required where both:

1. The location of the supplier; and

2. The place of supply,

are in a State or Union Territory different from the State or Union Territory in which the recipient is registered.

Both elements must be tested.

Example A: TDS applies

• Recipient registered in Delhi.

• Supplier located in Haryana.

• Place of supply is Delhi.

The supplier's location and place of supply are not both in a State different from Delhi. The statutory exclusion does not apply.

Example B: TDS does not apply

• Recipient registered in Delhi.

• Supplier located in Haryana.

• Place of supply is Haryana.

Both the supplier's location and place of supply are in Haryana, which is different from the recipient's registration State, Delhi. The proviso applies and TDS is not required.

A buyer should therefore not decide the TDS treatment merely by comparing the supplier's GSTIN State code with its own. The place of supply must also be established.

4. What is the GST TDS rate?

The applicable aggregate deduction is 2%.

Nature of supply	TDS rate
Intra-State supply	1% CGST + 1% SGST/UTGST = 2%
Inter-State supply	2% IGST

The deduction is calculated on the taxable value excluding GST and cess.

The place-of-supply exclusion must be tested before applying the rate. An inter-State transaction does not automatically mean TDS is payable.

5. Reverse charge on purchases from unregistered suppliers

Notification No. 04/2026-Central Tax (Rate) amends Notification No. 4/2017-Central Tax (Rate) by adding specified goods to the reverse-charge framework.

The new entries are:

Entry	HSN	Goods	Supplier	Recipient
2A	1518	Used cooking oil	Any unregistered person	Any registered person
3B	3915	Waste and scrap of plastics	Any unregistered person	Any registered person
3C	4004	Waste and scrap of tyres	Any unregistered person	Any registered person
9	8549	Electrical and electronics waste and scrap	Any unregistered person	Any registered person

The corresponding amendments under Notification No. 04/2026-Integrated Tax (Rate) and Notification No. 04/2026-Union Territory Tax (Rate) must also be considered for the applicable inter-State and Union Territory transactions.

Metal scrap was already covered under the earlier reverse-charge framework and should not be presented as a newly introduced 2026 category.

The recipient must discharge GST under the applicable reverse-charge mechanism. The rate depends on the correct classification and applicable rate notification; there is no single uniform rate for all these goods.

TDS and RCM are two different mechanisms

Particulars	GST TDS	Reverse charge
Governing provision	Section 51	Section 9(3)
Supplier	Registered supplier	Unregistered supplier under the notified entry
Recipient	Notified registered recipient	Registered recipient specified in the notification
Tax payment	Deducted from supplier payment or credit	Paid by recipient to Government
Supplier's treatment	TDS credit in electronic cash ledger	Supplier does not receive TDS credit for RCM
Recipient's treatment	Deduction and reporting obligation	GST liability under RCM; eligible ITC subject to statutory conditions

The practical rule: first verify the supplier's registration status. If registered, examine TDS. If unregistered, examine RCM. Do not apply both mechanisms mechanically to the same purchase merely because the goods appear in both notification frameworks.

6. Registration implications for suppliers: Notification No. 06/2026-Central Tax

This notification requires careful attention.

Notification No. 5/2017-Central Tax had provided a special exemption from GST registration to persons exclusively engaged in making taxable supplies where the entire tax was payable by the recipient under reverse charge.

The exemption was already restricted for metal scrap through Notification No. 24/2024-Central Tax dated 9 October 2024.

Notification No. 06/2026-Central Tax dated 27 October 2026 substitutes the proviso to Notification No. 5/2017-Central Tax and provides that the special exemption will not apply to a person engaged in supplying:

• Used cooking oil under heading 1518;

• Waste and scrap of plastics under heading 3915;

• Waste and scrap of tyres under heading 4004;

• Metal scrap under Chapters 72 to 81; or

• Electrical and electronics waste and scrap under heading 8549.

The amendment is effective from 1 November 2026.

What does this mean for suppliers?

A supplier dealing in these goods can no longer rely on the special exemption under Notification No. 5/2017-Central Tax merely because its supplies are covered by reverse charge.

However, withdrawal of this specific exemption should not be confused with a blanket statement that every supplier must register irrespective of all other statutory provisions.

The supplier must reassess its position under:

• Section 22: turnover-based registration liability;

• Section 23: persons not liable for registration and applicable exemptions; and

• Section 24: compulsory registration categories.

The supplier should examine its aggregate turnover, nature of supplies, other business activities and any other applicable registration provision.

A supplier who previously relied on Notification No. 5/2017-Central Tax must reassess its registration position from 1 November 2026. Continuing to claim the withdrawn exemption without examining the revised law can create exposure.

7. Separate GST registration for TDS deductors: FORM GST REG-07

A person required to deduct tax under Section 51 must obtain registration as a TDS deductor under Section 24(vi), read with Rule 12 of the CGST Rules.

This is a separate registration requirement. An existing regular GST registration does not, by itself, replace the additional TDS registration.

The prescribed application is FORM GST REG-07. The registration certificate is issued in FORM GST REG-06 after verification.

GSTN Advisory No. 684 dated 1 November 2026 addresses the registration procedure for dealers in the newly notified categories.

The advisory instructs applicants dealing in the additional categories to:

1. Open Part B of Table 2 in FORM GST REG-07.

2. Select “Others” under the relevant Constitution of Business field.

3. Specify the applicable category in the text box, such as:

   • Used Cooking Oil Dealers;

   • Waste and Scrap of Plastics Dealers;

   • Waste and Scrap of Tyres Dealers; or

   • Electrical and Electronics Waste and Scrap Dealers.

4. Complete the remaining particulars and submit the application.

Businesses newly covered by the notification should not assume that their ordinary GSTIN automatically satisfies the TDS registration requirement.

Existing metal-scrap TDS deductors should also review their registration particulars and the GST portal requirements in light of the expanded categories.

8. When must TDS be deducted, deposited and reported?

Section 51(1) requires deduction from the payment made or credited to the supplier.

The trigger is the earlier of payment or credit. The deduction should therefore be integrated with both accounts payable and payment processing.

Waiting until the bank payment may result in a missed deduction where the supplier has already been credited in the books.

Deposit deadline

Under Section 51(2), the amount deducted must be paid to the Government within ten days after the end of the month in which the deduction is made.

Monthly compliance calendar

Compliance	Provision / form	Due date
Deposit of TDS	Section 51(2)	Within 10 days after month-end
Monthly TDS return	Section 39(3), Rule 66, FORM GSTR-7	On or before the 10th of the succeeding month
TDS certificate	Section 51(3), Rule 66, FORM GSTR-7A	Made available electronically on the portal on the basis of GSTR-7

An important change introduced through the Finance Act (No. 2), 2024 is that the TDS deductor must furnish GSTR-7 for every calendar month, whether or not any deduction has been made during that month.

Therefore, a nil GSTR-7 return should not be ignored merely because no TDS transaction occurred during the month. The applicable late-fee provisions and any specific waiver for nil returns should be checked separately.

The deductor should reconcile the amount deducted in the books, the amount deposited, the GSTR-7 return and supplier-wise details before filing.

9. How does the supplier claim TDS credit?

GST TDS is not input tax credit.

Section 51(5) provides that the supplier can claim credit of the amount deducted in its electronic cash ledger, once the deduction is reflected in the deductor's GSTR-7 return and the details are validated.

The distinction is important:

• GST TDS is not ITC.

• It is not credited to the electronic credit ledger.

• It is reflected in the electronic cash ledger.

• It can be used in accordance with the applicable GST provisions.

• Excess or erroneous deduction is dealt with under Section 51(8), read with Section 54, subject to the statutory conditions.

Supplier's reconciliation checklist

The supplier should periodically verify:

1. Whether the buyer deducted the correct amount.

2. Whether the buyer deposited the deducted amount.

3. Whether the deduction was reported against the correct GSTIN.

4. Whether the amount appears in the electronic cash ledger.

5. Whether the amount reconciles with the books and GST returns.

A deduction made by the buyer but not correctly reported or deposited can delay the supplier's ability to use the credit.

10. Consequences of non-compliance

GST TDS is not merely an accounting adjustment. Failure to deduct, deposit or report the tax can have statutory consequences.

Default	Relevant provision	Consequence
Failure to deduct or short deduction	Sections 51(1) and 122(1)(v)	Penalty exposure
Deduction made but amount not paid to Government	Sections 51(2), 51(6) and 50(1)	Tax recovery and interest
Amount in default	Section 51(7), read with Section 73, 74 or 74A, as applicable	Determination and recovery proceedings
Delay in filing GSTR-7	Sections 39(3) and 47, subject to applicable notifications	Late-fee exposure
Excess or erroneous deduction	Sections 51(8) and 54	Refund subject to statutory conditions

Interest

Section 51(6) specifically provides for interest under Section 50(1) where the deductor fails to pay to the Government the amount deducted as tax.

Determination and recovery

Section 51(7) provides that determination of the amount in default is to be made in the manner specified in Section 73, Section 74 or Section 74A, as applicable.

For periods from FY 2024-25 onwards, Section 74A is the relevant determination provision for the applicable categories of tax defaults.

Penalty

Section 122(1)(v) specifically covers failure to deduct tax under Section 51(1), deduction of an amount lower than required and failure to pay the amount deducted to the Government.

The penalty is governed by Section 122(1), including the prescribed minimum and the amount linked to the tax involved, whichever is higher, subject to the statutory conditions.

A missed TDS deduction should not be treated as a routine vendor-payment error. It can result in interest, penalty and recovery proceedings.

11. Practical controls every scrap buyer should implement

The most effective compliance system builds the legal checks into vendor onboarding, purchase orders and payment processing.

Stage	Control
Vendor onboarding	Verify GSTIN, legal name and registration status
Product classification	Confirm correct Customs Tariff heading and description
Purchase order	Identify whether TDS or RCM may apply
Contract review	Monitor total taxable value under the contract against Rs 2,50,000
Invoice booking	Exclude GST and cess from the TDS base
Place of supply	Verify supplier location, place of supply and recipient's registration State
Accounts payable	Deduct at the time of payment or credit, whichever is earlier
Tax payment	Deposit TDS within the prescribed period
Monthly return	File GSTR-7, including nil returns
Supplier reconciliation	Verify GSTR-7A and electronic cash-ledger credit

Transaction-level decision process

Step 1: Identify the goods and verify the tariff classification.

Step 2: Check whether the supplier is registered.

Step 3: If registered, determine whether the recipient is covered by the Section 51 notification.

Step 4: If unregistered, examine the applicable RCM entry and corresponding tax notification.

Step 5: For a TDS transaction, test whether the total taxable value under the contract exceeds Rs 2,50,000.

Step 6: Apply the place-of-supply exclusion.

Step 7: Calculate TDS on the taxable value excluding GST and cess.

Step 8: Deduct, deposit, report and reconcile within the prescribed timelines.

Step 9: Separately review the supplier's registration position after Notification No. 06/2026-Central Tax.

12. What businesses should do immediately

For buyers

• Identify all purchases of the notified goods from 1 November 2026.

• Segregate registered and unregistered suppliers.

• Review contracts and purchase orders exceeding Rs 2,50,000.

• Map the correct TDS or RCM treatment.

• Obtain separate TDS registration through FORM GST REG-07 where required.

• Configure the accounting system to deduct TDS at the correct event and on the correct value.

• Establish monthly GSTR-7 and electronic cash-ledger reconciliation.

• Review RCM reporting and payment separately from TDS compliance.

For suppliers

• Verify the tariff classification of goods supplied.

• Identify customers likely to deduct TDS.

• Review whether supplies are covered by reverse charge.

• Reassess registration eligibility after Notification No. 06/2026-Central Tax.

• Reconcile TDS deductions appearing in the electronic cash ledger.

• Maintain contracts, invoices, weighment records, delivery challans and classification documents.

CA S. Ahuja Perspective

The November 2026 changes are not simply an extension of GST TDS to four additional categories of scrap and waste. They create a connected compliance framework involving TDS on purchases from registered suppliers, reverse charge on specified purchases from unregistered suppliers and a revised registration position for suppliers who previously relied on the special exemption for exclusively reverse-charge supplies.

For businesses dealing in scrap, recycling, used materials and waste, the first question should not be whether the deduction rate is 2%.

The real question is whether the transaction has been correctly classified and placed under the right statutory mechanism.

A wrong decision at vendor onboarding can flow into the purchase order, invoice booking, payment, GSTR-7, RCM liability and supplier's cash-ledger reconciliation.

The safest approach is to classify first, verify the supplier's registration status, test the contract threshold, determine the place of supply and only then decide whether TDS or RCM applies.

Compliance is not achieved merely by deducting tax. It is achieved when the buyer deducts the correct amount, the supplier receives the proper credit and the transaction is supported by a defensible legal and documentary trail.