Unclaimed Shares and Dividends: How to Find, Trace and Recover Forgotten Investments Through IEPF

The certificates may be missing, the investor may have died, and the folio number may be unknown. Here is how families can trace old investments and pursue recovery.

By CA Surekha S Ahuja
27 October 2026

Your father bought shares decades ago. Your mother remembers receiving dividends, but the payments stopped. The certificates are missing, the company may have changed its name, and nobody knows the folio number.

Could the investment still be recovered?

Possibly. But the first task is not filing a claim. It is establishing what the investor owned, locating the records, identifying where the shares or dividends are held and proving who is entitled to claim them.

The recovery process begins with a search—not a form.

1. First establish where the investment is held

What you discover	What to do next
Shares and unpaid dividends remain with the company	Approach the company or its Registrar and Transfer Agent (RTA) for the applicable payment or transmission procedure.
Dividend has moved to IEPF, but shares have not	Establish the dividend entitlement and follow the applicable IEPF claim process for that amount.
Shares have been transferred to IEPF	Establish the claimant's entitlement and follow the IEPF recovery procedure.
The registered shareholder has died	Establish who can claim under the applicable nomination, joint-holder, transmission and succession requirements.
The company, certificate and folio are unknown	Reconstruct the investment history before filing.
An earlier claim was rejected or remains pending	Identify the specific deficiency and the action required to resolve it.

Do not assume every old investment has moved to IEPF. Equally, a failed online search does not prove that no investment exists.

2. When do unpaid dividends and shares move to IEPF?

Sections 124 and 125 of the Companies Act, 2013, govern the relevant unpaid-dividend and Investor Education and Protection Fund framework.

• Unpaid dividend: If a declared dividend remains unpaid or unclaimed for 30 days, the company must transfer it to the Unpaid Dividend Account within the next seven days.

• Dividend transferred to IEPF: Amounts remaining unclaimed in the Unpaid Dividend Account for seven years are transferred to IEPF, together with applicable accrued interest.

• Shares transferred to IEPF: Shares on which dividend has remained unpaid or unclaimed for seven consecutive years or more are subject to transfer under the applicable statutory provisions, including relevant exceptions.

The seven-year rule does not mean every old shareholding automatically moves to IEPF. The dividend history and company records must be checked.

3. How to trace physical shares when the certificate and folio are missing

The most difficult case is often one in which the original shareholder has died and the family has no certificate, folio number, PAN or company name.

There is no single public database that guarantees discovery of every historical physical shareholding. Use the following sequence.

Step 1: Search family records

Check old files, bank lockers, personal papers and records held by other family members. Look for:

• Physical share certificates, including damaged certificates and photocopies.

• Dividend warrants, dividend advice slips and old bank statements showing dividend credits.

• Income-tax returns, wealth-tax records, personal balance sheets and net-worth statements.

• Company letters, annual reports, AGM notices and investment correspondence.

• Old broker statements, demat statements and records of the deceased's spouse or joint holders.

One old dividend warrant may reveal the company name, folio number and shareholder particulars needed to begin the search.

Step 2: Record every available clue

From any surviving document, extract the shareholder's name, company name, folio number, certificate number, distinctive numbers, number of shares, face value and old registered address.

Do not discard a certificate because the company name looks unfamiliar. The issuer may have changed its name, merged or transferred its records to a successor entity.

Step 3: Search IEPFA's online facility

Start with the official IEPFA Portal Login and Search Facility.

The search facility provides three routes:

1. Search by PAN

2. Search by basic information, such as name and date of birth

3. Search by company name with Demat ID or folio number

For a deceased shareholder, try the available basic particulars and name variations where the search form allows them. If PAN or folio details are missing, do not stop at the first unsuccessful search.

A failed search is not conclusive. The investment may still be held by the company, may be recorded under different particulars, or may require a search of historical records.

Step 4: Ask the company or RTA to trace historical records

Once a possible issuer is identified, write to its investor-relations team or RTA. Supply every available clue, including the shareholder's name, former address, approximate investment period and any certificate or dividend reference.

Request written confirmation of:

• Whether a historical folio or shareholding exists.

• The number of shares and available certificate particulars.

• The unpaid-dividend history.

• Whether shares or dividends have been transferred to IEPF.

• Whether the company changed its name, merged or transferred records to a successor entity.

• The applicable procedure for establishing entitlement and pursuing recovery.

If the RTA insists on a folio number, explain that the family is trying to trace that very number. Ask whether a historical search can be conducted using the shareholder's name and former address.

Step 5: Trace a former company or successor entity

Use the name appearing on an old certificate, dividend warrant or letter to trace the issuer's corporate history. Check available company master data through the Ministry of Corporate Affairs and identify the successor company or current RTA, where applicable.

If the company is under liquidation or has been dissolved, investigate the relevant corporate or liquidation records to establish who holds the historical records and which recovery route remains available.

Step 6: If the family has no documents at all

Reconstruct the investor's history using bank records, tax records, former employers, business papers, broker correspondence and family information.

Ask relatives whether the investor regularly received dividends or maintained an investment relationship with a broker. Search IEPFA using the available particulars. If a possible issuer emerges, approach its RTA for a historical-record search.

Practical tip: Maintain a tracing register recording each name searched, company contacted, response received, folio identified and next action. This is particularly useful where several family members may have held shares in different companies.

4. The shareholder has died: a legal-heir certificate may provide a simpler route

Finding an investment and proving the right to recover it are separate steps. Families should not assume that a succession certificate or probate is invariably the only route.

The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2024, notified as G.S.R. 552(E) dated 9 September 2024, amended Schedule II to recognise a legal-heir certificate issued by a revenue authority not below the rank of Tahsildar having jurisdiction, as an alternative to the specified court or tribunal documentation in the applicable transmission process.

Where this route is used, the prescribed supporting documents include:

• A notarised indemnity bond from the claimant to whom the securities are to be transmitted.

• A no-objection certificate from the other legal heirs, confirming relinquishment of their rights to the transmission claim, with the attestation required under the applicable rules.

This can offer a practical alternative to obtaining a succession certificate or other court-issued documentation. The claimant should verify the applicable Schedule II requirements and the company's current document checklist before proceeding.

The correct route still depends on the registered holding, nomination, claimant's status and facts of the succession.

• Joint holding: Establish the registered holders and the procedure applicable after the death of one holder.

• Registered nominee: Obtain the death certificate and follow the applicable transmission and claim requirements.

• No nomination: Establish the appropriate legal-heir route and supporting evidence.

• Multiple heirs: Obtain prescribed no-objection documents or other evidence, where applicable.

• Disputed succession: Obtain appropriate legal advice before filing.

Being a child or spouse does not, by itself, establish entitlement to claim securities registered solely in another person's name.

Keep the two processes separate: transmission establishes who is entitled to the securities; the IEPF refund process deals with the shares or amounts transferred to the Fund. Complete the applicable transmission and verification requirements rather than treating the claim form as a substitute for succession documentation.

5. Lost certificates, mismatched names and other obstacles

Problem	Practical action
Original physical certificate is lost	Ask the company or RTA for the applicable lost-security procedure and prescribed supporting documents.
Name or signature does not match	Reconcile the original records with current identity documents and follow the prescribed correction or verification procedure.
Address has changed	Provide the required evidence and complete the applicable record-update procedure.
Old bank account is closed	Establish the bank particulars required for the claim and verify them before submission.
Dividends were never received	Obtain the company's dividend history and identify which amounts remain with the company and which have moved to IEPF.
Company cannot locate the folio	Supply historical clues and request a search of older records.
Company changed its name or merged	Trace the corporate history and identify the successor company or current RTA, where applicable.
Claim was rejected or returned	Identify the specific defect and follow the prescribed correction or resubmission process.
Claim remains pending	Track the SRN, contact the designated IEPF Nodal Officer and request written confirmation of the outstanding action.

What changed for lost physical securities?

The 2024 amendment also revised the documentary requirements for lost or misplaced securities, including omission of the earlier surety-affidavit item from Schedule III.

This does not mean that a lost certificate can simply be ignored. The claimant must still follow the applicable lost-security procedure and provide the evidence required for the particular case, including prescribed declarations, indemnities or other supporting documents.

6. Before filing Form IEPF-5, reconcile the entitlement

A frequent cause of delay is filing without reconciling the claim with the company's records.

Ask the company or RTA for an entitlement letter or written confirmation of the shares and amounts transferred to IEPF, where applicable. Reconcile:

• Company name and relevant corporate particulars.

• Shareholder name and folio or demat details.

• Number of shares transferred.

• Dividend amounts and relevant years.

• Whether the claim covers shares, amounts or both.

• The claimant's identity and basis of entitlement.

The substituted Form IEPF-5 took effect on 6 October 2025 under the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Amendment Rules, 2025, notified as G.S.R. 733(E) dated 1 October 2025.

The revised form includes a field relating to an entitlement letter issued by the company or bank and covers claims involving transmission. Check the live form and its instructions to establish what is required for the particular case.

7. Form IEPF-5: filing and document submission

Once the investment and claimant have been identified, follow the current official procedure.

Step 1 — Prepare the supporting documents. Depending on the case, these may include identity and PAN particulars, an entitlement letter where applicable, bank proof, a demat Client Master List, evidence of shareholding, prescribed indemnity and declaration documents, and death or succession documents where relevant.

Step 2 — File the current Form IEPF-5. Access the applicable filing facility through the Ministry of Corporate Affairs portal and follow the latest form instructions.

• IEPF Authority

• Ministry of Corporate Affairs

Step 3 — Upload documents and retain the acknowledgement. Legal heirs, successors, administrators and nominees must follow the applicable requirements for uploading self-attested scanned copies of the prescribed Schedule II documents with Form IEPF-5. Send physical documents in original or other prescribed form only where the current rules, company instructions or claim-specific procedure require them.

Retain the Service Request Number (SRN), acknowledgement and proof of any required dispatch.

Step 4 — Complete verification. The company verifies the claim and submits the prescribed verification report to the Authority. Respond promptly to any deficiency or resubmission request.

Step 5 — Track recovery to completion. Maintain a dated record of the SRN, documents submitted, communications and status. After approval, verify that the eligible amount has been credited or that the shares have been transferred, as applicable.

Filing Form IEPF-5 does not guarantee approval. Incomplete evidence, inconsistent particulars or unresolved entitlement issues can delay or prevent recovery.

8. If the company is not responding

Use a documented escalation process:

1. Write to the RTA with the folio or available historical particulars.

2. If unresolved, contact the company's IEPF Nodal Officer using the details published by the company.

3. Refer to the SRN, dates, documents submitted and precise outstanding issue in each follow-up.

4. If the matter remains unresolved, use the applicable official grievance or escalation mechanism.

Ask what remains outstanding, who must act and which document or correction is required. Avoid sending original documents unless the applicable instructions require them, and retain proof of dispatch.

9. Search across unclaimed financial assets—not just shares

Families may have forgotten bank deposits, insurance proceeds, mutual fund investments or other financial assets alongside old shares.

The Finance Ministry's Common Landing Portal for Unclaimed Financial Assets provides a single starting point for accessing search facilities across multiple categories:

Search Unclaimed Financial Assets

For bank deposits specifically, the Reserve Bank of India's UDGAM portal provides a search facility for unclaimed deposits maintained by participating banks:

RBI UDGAM Portal

These portals help locate possible assets; they do not replace the relevant institution's claim, identity-verification or succession procedure.

10. Create a recovery file for each shareholder

Maintain one file containing:

• Shareholder's name and available identity details.

• Company name, former name and RTA contact details.

• Folio number, certificate particulars or DP ID and Client ID.

• Old certificates, dividend warrants, statements and correspondence.

• Company confirmation and entitlement particulars.

• Claimant's identity, legal-entitlement and succession documents, where relevant.

• Form IEPF-5 acknowledgement and SRN.

• Supporting documents and proof of any required dispatch.

• Verification, deficiency and resubmission communications.

• Final proof of payment or share transfer.

This record is particularly important where the original shareholder has died or the family is tracing multiple investments.

A final practical caution: the IEPFA portal is expected to change

The Ministry of Corporate Affairs reported in August 2026 that the planned Integrated IEPFA Portal 2.0 rollout was scheduled for November 2026. Proposed features include a pre-filled Form IEPF-5 and an entitlement-search facility. These are planned features, not a guarantee that every feature will be live on a particular date. <Cite refs={["turn127118search0"]}/>

Before filing, check the official IEPFA and MCA websites for the live search facility, current form and latest instructions. Do not rely solely on screenshots or filing steps from an older version of the portal.

CA S.Ahuja perspective

Forgotten investments are often not lost through one major event. They become difficult to recover through a series of small gaps: a forgotten folio, a changed company name, a missing certificate, an outdated bank account or an unresolved succession issue.

The correct sequence is:

Trace the investment → confirm where it is held → reconcile the entitlement → establish who can claim → complete the applicable filing and verification → track recovery to completion.

For families, this is also an opportunity to review old physical certificates, demat statements, dividend records and succession documents before another generation loses track of the investment.

The objective is not merely to file Form IEPF-5. It is to establish the entitlement correctly and recover what is legally due.

Commercial Debit Note under GST: 14 Cases, Format & Entries

 Commercial Debit Note under GST: 14 Situations, Correct GST Treatment, Format and Accounting Entries

By CA Surekha S Ahuja

A supplier delivers goods worth ₹10 lakh. The buyer discovers a shortage, defective items or an overcharge of ₹80,000.

The buyer raises a debit note.

The accounts team records the recovery. The supplier adjusts the balance. Both move on.

But one question can change the tax treatment: Is this merely a commercial adjustment—or does it require a GST document and a corresponding tax adjustment?

A commercial debit note does not, by itself, reduce the supplier’s GST liability or create an additional GST credit for the buyer. Confusing it with a statutory GST debit note or credit note can lead to incorrect returns, disputed input tax credit (ITC), and avoidable reconciliation problems.

This guide explains the distinction and how to handle 14 common business situations.

1. Commercial debit note vs GST debit note: the essential distinction

Particulars	Commercial debit note	GST debit note
Who generally issues it?	Buyer to supplier, to claim an amount or record an adjustment	Supplier to recipient
Purpose	Commercial recovery, shortage, overcharge or contractual adjustment	To correct an invoice where taxable value or tax charged was lower than payable
GST effect by itself	No automatic change in GST liability or ITC	May affect the supplier’s tax liability and recipient’s ITC, subject to the law
GST return reporting	Not reported as a statutory GST debit note merely because it is called a debit note	Reported under the applicable GST reporting requirements
Main legal reference	Underlying contract, transaction and accounting records	Section 34(3) of the CGST Act and applicable rules

Remember: The document’s title does not determine its GST treatment. Its purpose, the underlying transaction and the statutory conditions do.

Section 34(3) of the CGST Act deals with a supplier-issued debit note where the taxable value or tax charged in the original invoice is less than the value or tax payable. A buyer’s commercial debit note is not a substitute for that document.

Read Section 34 of the CGST Act.

2. The 14 situations: what should the business do?

No.	Situation	Correct approach
1	Goods returned to supplier	Document the return. Determine whether the supplier will issue a GST credit note or the buyer must account for the return as a separate supply under the applicable facts and law. Do not reverse or adjust GST twice.
2	Short supply	Record the shortage and claim the contractual amount. Reconcile the original invoice, goods received and payment. ITC depends on the actual receipt and applicable statutory conditions.
3	Damaged or defective goods	Preserve inspection reports, photographs, rejection notes and correspondence. Establish whether goods are returned, retained at a reduced price or compensated separately.
4	Supplier overcharged the buyer	Seek correction of the invoice and applicable GST treatment. A buyer-issued commercial debit note alone does not correct the supplier’s GST invoice or tax liability.
5	Post-sale discount	A commercial or financial credit note may adjust the amount payable without reducing the supplier’s GST liability. Apply the relevant conditions and guidance in CBIC Circular No. 251/08/2025-GST.
6	Liquidated damages for supplier delay	Examine the contract and the real nature of the payment. Compensation for breach is not automatically consideration for a taxable service. Apply Circular No. 178/10/2022-GST.
7	Buyer paid an expense on supplier’s behalf	Recover the amount with supporting evidence. Rule 33 treatment as a pure-agent exclusion is available only when all prescribed conditions are met.
8	Advance, deposit or settlement adjustment	Reconcile the original payment and contractual obligation. A debit note cannot, by its label alone, determine the GST consequences of the adjustment.
9	Post-supply price reduction	Identify whether the reduction is merely commercial or qualifies for a GST value reduction under the applicable statutory conditions. Do not assume that every price reduction permits tax adjustment.
10	Supplier reimburses buyer’s expenses	Establish whether this is a genuine recovery, part of the consideration for the original supply or payment for a separate supply. The label “reimbursement” is not decisive.
11	Cheque dishonour charges	Review the underlying arrangement and the nature of the charge. Apply the principles in Circular No. 178/10/2022-GST rather than treating every recovery as automatically taxable or exempt.
12	Buyer breaches contract; damages or earnest money are forfeited	Examine the contractual facts and substance of the payment. A penalty or forfeiture is not automatically taxable merely because money is retained.
13	Exempt or non-GST transaction	Record the commercial adjustment correctly, but do not levy GST merely because a debit note is raised. Check whether any separate taxable supply exists.
14	Statutory dues or third-party costs recovered	Identify who incurred the liability, whose obligation it was, and whether the recovery forms part of the value of another supply or represents a separate supply.

These are common fact patterns, not automatic tax classifications. The supporting contract, invoice, evidence and actual conduct determine the correct treatment.

3. Three cases where a wrong entry can become a GST problem

Case A: The supplier issues a commercial credit note for a discount

A supplier invoices goods at ₹5,00,000 plus GST and later gives the buyer a commercial credit note for ₹50,000.

If the supplier does not reduce the taxable value and output tax through a statutory GST credit note, the commercial credit note does not, by itself, reduce the supplier’s GST liability. Under the clarification in Circular No. 251/08/2025-GST, the recipient is not required to reverse otherwise eligible ITC merely because such a financial or commercial credit note has been issued.

The original invoice, tax payment, credit note and ledger reconciliation should still be retained.

The mistake to avoid: Reducing output tax or reversing ITC solely because a commercial credit note appears in the books.

Read Circular No. 251/08/2025-GST.

Case B: The buyer claims liquidated damages for delay

A supplier misses a delivery deadline. The contract provides for damages of ₹1 lakh, and the buyer raises a commercial debit note.

The debit note records the claim; it does not settle the GST question.

Circular No. 178/10/2022-GST clarifies the GST treatment of liquidated damages, compensation and penalties. A payment arising from a breach is not automatically consideration for a service of tolerating the breach. The actual contractual arrangement and nature of the payment must be examined.

The mistake to avoid: Applying GST—or assuming that GST cannot apply—merely from the words “penalty”, “damages” or “deduction”.

Read Circular No. 178/10/2022-GST.

Case C: The buyer returns goods

A buyer returns defective goods and raises a commercial debit note for the value claimed.

The parties must establish how the return is being accounted for. Depending on the facts and applicable law, the supplier may issue a GST credit note, or the return may need to be treated as a separate supply by the buyer. The relevant invoices, movement records, tax treatment and ledger entries must agree.

The mistake to avoid: Treating the buyer’s commercial debit note as sufficient evidence that the supplier’s output tax and the buyer’s ITC have automatically been adjusted.

4. A practical decision tree before issuing a debit note

Step 1 — What is the buyer claiming?

• Shortage, damage, overcharge or contractual recovery: Prepare a commercial debit note supported by evidence.

• Correction of the supplier’s taxable value or tax charged: Ask whether the supplier must issue the relevant statutory GST document.

• A separate supply by the buyer: Assess the buyer’s own GST invoicing and tax obligations.

Step 2 — Does the adjustment change the original supply’s taxable value or tax?

• No: Record the commercial adjustment without assuming a GST reduction.

• Yes: Check the statutory route, eligibility conditions, time limits and applicable reporting requirements.

Step 3 — Is the amount damages, a reimbursement or a price reduction?

Examine the contract, actual events, supporting records and applicable GST guidance. The accounting description alone is not conclusive.

Step 4 — Do the records agree?

Reconcile the debit note, original invoice, goods receipt or return, supplier confirmation, payment and GST return treatment wherever relevant.

If any answer remains unclear, hold the GST adjustment until the transaction is properly classified.

5. Commercial debit note format

A commercial debit note should clearly identify the claim and its supporting transaction. The following is a practical format; it is not a prescribed GST debit-note format.

COMMERCIAL DEBIT NOTE

• Debit Note No.: [●]

• Date: [●]

• Buyer’s name, address and GSTIN: [●]

• Supplier’s name, address and GSTIN: [●]

• Original invoice number and date: [●]

• Purchase order or contract reference: [●]

• Reason for debit: [Short supply / damage / overcharge / contractual recovery / other]

• Description of goods or services: [●]

• Quantity or amount affected: [●]

• Amount claimed: ₹[●]

• GST treatment and basis, where relevant: [●]

• Supporting documents: [Inspection report / delivery record / correspondence / contract clause]

• Net adjustment claimed: ₹[●]

Declaration: This document records a commercial claim or adjustment. It is not, merely by being issued, a statutory GST debit note under Section 34(3) of the CGST Act.

The wording should be adapted to the actual transaction. Do not describe a disputed or unverified amount as an admitted liability.

6. Illustrative accounting entries

Entries depend on the transaction, the accounting policy and whether the amount is accepted or disputed. These examples are not universal journal-entry instructions.

Example 1: Buyer records an accepted commercial recovery of ₹10,000

Illustrative buyer entry:

• Supplier / payable account — Debit ₹10,000

• Relevant expense, purchase adjustment or recovery account — Credit ₹10,000

The credit account must reflect the substance of the transaction. A purchase-price adjustment, damages claim and reimbursement may require different treatment.

Example 2: Supplier accepts the commercial claim

Illustrative supplier entry, where the amount is properly recognised as a reduction in the amount receivable:

• Relevant sales adjustment, expense or claim account — Debit ₹10,000

• Buyer / receivable account — Credit ₹10,000

Do not automatically adjust output GST in either entry. Any tax adjustment must follow the applicable statutory route and conditions.

Example 3: Claim remains disputed

Do not treat the amount as an accepted settlement merely because the buyer has issued a debit note. Assess recognition, disclosure and recoverability under the applicable accounting framework and the facts.

7. The pre-issue checklist for accounts teams

Before posting or accepting a commercial debit note, confirm:

• The original invoice, purchase order and relevant contract are identified.

• The reason and amount of the claim are supported by records.

• The supplier has been notified, and acceptance or dispute status is recorded.

• The document is correctly distinguished from a statutory GST debit note or credit note.

• ITC and output tax have not been changed merely because a commercial document was issued.

• Any return of goods, price reduction, damages or reimbursement has been separately analysed.

• The ledger, payment adjustment and GST return treatment are consistent.

• The document and supporting evidence are retained for audit and reconciliation.

8. Common questions

Does a commercial debit note attract GST?

Not merely because it is issued. The GST outcome depends on the underlying transaction. A separate taxable supply or an amount forming part of the value of a supply may have GST consequences.

Can a buyer issue a GST debit note to increase the supplier’s tax?

A buyer’s commercial debit note is not the supplier-issued statutory debit note contemplated by Section 34(3). Where the original supplier invoice understates taxable value or tax, the supplier must examine the appropriate statutory correction.

Does a commercial debit note reduce the supplier’s output GST?

No, not by itself. A commercial claim or adjustment does not automatically reduce output tax.

Must the recipient reverse ITC when a commercial credit note is issued?

Not solely because a commercial or financial credit note has been issued. Circular No. 251/08/2025-GST clarifies the treatment of such discounts where the supplier does not reduce the original GST liability. The recipient must still satisfy the normal ITC conditions.

Are liquidated damages always outside GST?

No blanket conclusion should be drawn. Circular No. 178/10/2022-GST explains that damages or penalties arising from breach are not automatically consideration for a taxable service. The facts and contractual substance remain important.

Can a commercial debit note be used for every adjustment between buyer and supplier?

No. It may document a commercial claim, but it cannot replace a required tax invoice, statutory debit note or credit note, or the correct treatment of a separate supply.

CA S. Ahuja perspective

A debit note is easy to issue. Correctly classifying the transaction behind it is the real work.

For every commercial debit note, the accounts team should answer three questions before posting:

1. What exactly is being recovered or adjusted?

2. Does the adjustment change the GST treatment of the original supply, or is it a separate transaction?

3. Which document, evidence and return treatment support that conclusion?

A well-supported commercial debit note protects the business’s contractual position. A wrongly classified one can create a mismatch between the books, GST returns and the counterparty’s records.

The control that matters is simple: never let an accounting document decide the GST treatment. Let the transaction and the law decide it.

Your Business Has 10 Heads of Ravana. Which One Is Eating Your Wealth?

Vijaya Dashami Special | A 20-day business health check for promoters — from Dussehra to Diwali

By CA Surekha S Ahuja | Casahuja.com

Ravana burns in one evening. Business wealth doesn't.

It erodes slowly—through decisions postponed, warning signs explained away and problems everyone sees but nobody owns.

Record turnover, unpaid suppliers. Rising profits, rising debt. Decades of growth, yet the business still depends on one person. A tax issue ignored until the notice arrives.

From the outside, the business looks successful. Inside, the value on paper may be far greater than the wealth actually being created.

This Dussehra, find the heads before they find you. By Diwali, start defeating them.

The 10 heads of Ravana inside your business

1. Profit without cash

The profit and loss account shows a profit. The bank account disagrees. Cash is trapped in receivables, inventory and unadjusted advances.

Test: Can you explain, with numbers, where your profit went?

Act: Review operating cash flow, receivable ageing and inventory every month. Assign responsibility for releasing blocked cash.

2. Growth that destroys value

More branches, more orders, more borrowing, thinner margins. Turnover is not wealth. Profitable, cash-generating growth is.

Test: Before expanding, do you know the additional capital required, the margin earned and when the cash will return?

Act: Approve no major expansion without a funding plan, realistic cash-flow projections and an assessment of expected returns.

3. Customers using you as their bank

You pay employees and suppliers, then wait months for customers to pay. You are financing their business with yours.

Test: Which customers are consuming the most of your cash through overdue payments?

Act: Set customer-wise credit limits, weekly collection targets and escalation rules. A promise to pay is not a payment.

For eligible micro and small enterprises, delayed-payment provisions may also have income-tax consequences for the buyer. The applicable statutory conditions and exceptions must be checked before relying on this as leverage.

4. Borrowing that hides the real problem

Another loan. A bigger overdraft. More money from the promoter. The pressure eases, then returns—often larger.

Test: Is the borrowing covering a temporary timing gap or a recurring operating deficit?

Act: Prepare a rolling 13-week cash-flow forecast. Diagnose the cause before borrowing more.

5. Costs nobody owns

Excess stock, idle capacity, rework, freight and unnecessary overheads. Harmless individually, they can collectively eat away the margin.

Test: Can your finance team explain why margins have changed and which costs are growing fastest?

Act: Identify the major cost leakages, assign responsibility and measure actual savings—not merely proposed cuts.

6. One customer, one supplier, one person

Stability that rests on a single relationship is fragility in disguise.

Test: What happens if your largest customer stops buying tomorrow?

Act: Measure customer and supplier concentration, develop alternatives, document critical processes and build a second line of management.

7. Controls that exist only on paper

The same person initiates, approves and records transactions. Reconciliations remain pending. Stock differences are explained away.

Test: Could an unauthorised payment or inventory loss go unnoticed for months?

Act: Separate duties, set approval limits, reconcile independently and verify inventory physically. Investigate exceptions instead of normalising them.

8. Compliance deferred until the notice

A missed deadline, unsupported expense or incorrect tax position may look insignificant until interest, penalties, disallowances or litigation follow.

Test: Do you know your unresolved tax exposures, upcoming deadlines and the evidence supporting material tax positions?

Act: Maintain a compliance calendar with named responsibility and a separate register of unresolved issues, potential liabilities and corrective deadlines.

9. Family disputes waiting to happen

Ownership, management roles, remuneration, succession and exit expectations remain informal because nobody wants an uncomfortable conversation.

Then a founder retires, a shareholder dies or the next generation takes control—and the business becomes the battlefield.

Test: Could the business continue smoothly if a key shareholder were no longer available?

Act: Review ownership records, succession arrangements, decision-making authority and shareholder agreements with appropriate professional advice.

10. The promoter as bottleneck

Every decision waits for one person. Managers report activities rather than results. Financial information arrives too late to influence decisions.

The promoter remains busy, but the business cannot grow beyond the promoter's personal capacity.

Test: Can your business function effectively for 30 days without your daily intervention?

Act: Build a monthly management information system covering cash, receivables, inventory, margins, debt, compliance and major business risks. Delegate defined decisions and review measurable outcomes.

The 20-day challenge: Identify the Ravana. Act before Diwali.

Vijaya Dashami is the day to identify what is weakening your business. Diwali is your deadline to demonstrate that corrective action has begun.

Do not attempt to solve every problem in 20 days. Identify the three weaknesses posing the greatest threat to your cash, profitability or business continuity and act on them.

Days 1–5 | Identify. Review the ten warning signs. Select your three highest-priority risks and quantify their financial or operational impact.

Days 6–10 | Assign. Name a responsible person for each risk. Set a measurable target, a deadline and the authority needed to act.

Days 11–15 | Execute. Begin collections, address avoidable working-capital blockages, correct control weaknesses and act on overdue compliance issues.

Days 16–20 | Verify. Compare results with the starting position. Record what improved, what remains unresolved and which decisions require the promoter's intervention.

Risk area	What to measure	Diwali target
Overdue receivables	Cash collected against the recovery plan	Demonstrable collection progress
Excess inventory	Value of slow-moving or avoidable stock	Measurable reduction or a documented disposal plan
Funding pressure	Forecast cash gap	A credible, funded cash-flow plan
Cost leakage	Actual savings against the baseline	Verified savings or corrective action
Compliance exposure	Open issues and approaching deadlines	Documented action on priority exposures
Promoter dependency	Decisions delegated and completed	Reduced unnecessary escalation

Do not count meetings held. Count what changed.

Some problems will take longer than 20 days to resolve. That is acceptable. What is not acceptable is reaching Diwali without ownership, a deadline or evidence of progress.

The Diwali test is simple: What has improved, what risk has reduced, and what remains to be done?

CA S. Ahuja Perspective

The most dangerous business risks are rarely hidden. They sit in plain sight—in the ageing report, the rising debt, the unexplained margin decline, the unsigned agreement or the unresolved compliance issue.

They survive because the promoter is busy with the next order, the next expansion or the next funding round.

But growth and strength are not the same thing.

The real test is whether your business can generate sustainable cash, earn adequate returns, meet its obligations, withstand disruption and protect the wealth its owners have worked to create.

This Vijaya Dashami, do not ask only how much your business has grown.

Ask what could destroy that growth—and which decision you have been postponing.

You do not need to defeat all ten heads today. You do need to stop ignoring them.

By Diwali, make sure at least one of your business's most dangerous weaknesses is being decisively addressed.

Because the real victory is not burning an effigy for one evening.

It is protecting the value you have built, one business decision at a time.

Casahuja.com | Practical tax, finance and business advisory for promoters and enterprises.

MSME Payments: TReDS, Factoring or Bank Finance — What Is Legally Safe, What Does It Cost and Who Bears the Risk

 By CA Surekha S Ahuja

A buyer wants 60 days. A Micro or Small supplier needs money in 10. Financing can bridge that gap.

But financing does not automatically rewrite the buyer’s statutory payment obligation.

That is the starting point for evaluating TReDS, factoring, invoice discounting, bank finance and supply-chain finance.

The real issue is not the financing product

Under Section 15 of the MSMED Act, a buyer must pay within the period agreed in writing or, where there is no written agreement, within 15 days of acceptance. A written agreement cannot provide more than 45 days from acceptance or deemed acceptance.

The statutory clock is linked to acceptance of goods or rendering of services, not simply to the invoice date, internal approval or uploading an invoice on a financing platform.

For covered delayed payments, Section 16 provides compound interest with monthly rests at three times the RBI Bank Rate. Section 23 makes such MSMED interest non-deductible for income-tax purposes.

From 1 April 2026, the corresponding income-tax provision is Section 37(2)(g) of the Income-tax Act, 2025. Delay can therefore create:

interest cost + tax deduction deferral + financing cost.

Financing should be arranged before statutory default, not used to postpone it.

Figure 1: How the statutory payment date is fixed

Who is the supplier?

The MSMED payment regime applies where the supplier falls within the statutory coverage. Buyer controls should therefore verify Udyam status, category and applicability for the relevant supply.

From 1 April 2025:

•      Micro: investment up to ₹2.5 crore and turnover up to ₹10 crore

•      Small: investment up to ₹25 crore and turnover up to ₹100 crore

•      Medium: investment up to ₹125 crore and turnover up to ₹500 crore

Section 15 protects Micro and Small suppliers. Medium enterprises are outside it.

Financing changes the fund flow — not necessarily the legal obligation

The first question should not be “TReDS or factoring?”

It should be:

Who needs liquidity, who funds it, who bears the cost, who ultimately receives payment, and when is the buyer’s statutory obligation discharged?

TReDS

TReDS provides an electronic mechanism for financing MSME trade receivables. The MSME can obtain early payment from a financier, while the buyer settles the receivable with the financier on the agreed due date.

The supplier’s liquidity problem is therefore addressed without necessarily changing the buyer’s underlying payment obligation.

Figure 2: Who pays whom on TReDS

Factoring or assignment

Factoring can transfer the receivable to a financier. But assignment does not automatically extend the payment period.

Section 14 of the Factoring Regulation Act preserves the MSMED payment framework for receivables of Micro or Small enterprises. Assignment may change who receives the money; it does not automatically change when the amount is legally payable.

Bank, NBFC or fintech finance

The buyer may finance its working capital and pay the supplier on time. Alternatively, the supplier may discount the receivable.

The legal and tax result depends on the actual structure—not merely on whether the product is called vendor finance, invoice discounting, supply-chain finance or platform finance.

Two transactions that look similar but are not

Supplier seeks early cash: A ₹10 lakh invoice is discounted by a financier and the buyer pays the financier on the agreed due date. This is principally financing a receivable.

Buyer finances an overdue payment: The statutory due date passes and the buyer subsequently arranges finance to settle the amount.

That is fundamentally different.

Financing the overdue amount does not automatically cure the original default.

Figure 3: Financing a receivable compared with financing a delay

The cost of delay can exceed the financing cost

Illustratively, on ₹1 crore for 45 days:

Route	Illustrative cost
TReDS at 8.75%	₹1.08 lakh
Bank finance at 9.5%	₹1.17 lakh
Buyer borrowing at 10%	₹1.23 lakh
Fintech at 11.5%	₹1.42 lakh
NBFC at 15%	₹1.85 lakh
Statutory interest at illustrative 16.5%	₹2.03 lakh

 

These are illustrations, not prescribed or market rates. The financing costs are ordinarily deductible business expenses; the statutory interest is not.

The cheapest compliant financing may be far cheaper than financing a statutory default.

TDS: interest, discounting and finance charges are not the same thing

“Finance charge” is not itself a TDS category.

The correct analysis is:

What is the payment? Who receives it? Who bears it? What is its legal character? Which TDS provision applies?

Interest

Where the amount is genuinely interest, Section 194A of the Income-tax Act, 1961, or the corresponding Section 393 framework of the Income-tax Act, 2025, may apply, subject to the payer, payee, threshold and specific exclusions.

Interest paid to a banking company is subject to specific exclusions under the TDS framework. Interest paid to other specified financiers may attract TDS where Section 194A/Section 393 applies.

Receivable discounting

A discount on assignment or discounting of a receivable is not automatically the same as interest merely because the financier deducts it from the amount funded.

Its treatment depends on the substance of the transaction—whether there is an actual assignment/purchase of the receivable, the rights and recourse of the financier, the nature of the return and the contractual arrangement.

Therefore, do not deduct TDS mechanically on every amount described as “discounting charges”.

At the same time, the label “discount” cannot by itself establish that TDS is not applicable. The documentation and actual transaction must support the characterization.

Platform, processing and other finance-related charges

A separate platform, processing, documentation, administration, brokerage or other service charge requires independent classification.

It should not automatically be treated as interest. Equally, it does not automatically become Section 194C payment merely because it is called a “finance fee”.

The applicable TDS provision must follow the legal character of the payment, not its commercial label.

The Income-tax Act, 2025 consolidates the earlier TDS provisions into Section 393 tables, with the underlying TDS rates and thresholds broadly retained.

Figure 4: Classifying each charge before deciding TDS

Settlement statements must separate the components

A financing settlement should, wherever applicable, separately identify:

Invoice value → discount/interest → platform/processing charges → GST, if applicable → TDS, if applicable → supplier receipt → financier funding → buyer’s final settlement.

This prevents the common error of treating every deduction as interest—or every finance-related fee as subject to the same TDS provision.

GST requires the same discipline

Financing consideration may have a different GST treatment from platform, processing, documentation, administration or broking charges.

Do not assume that the entire settlement statement is exempt merely because the transaction relates to financing.

Classify each charge separately.

Who should bear the financing cost?

If the supplier chooses early payment for its own liquidity, the discounting cost may ordinarily be a supplier-side commercial cost.

If the buyer wants the supplier paid early, the commercial arrangement may justify the buyer bearing the cost.

If the buyer simply wants to extend payment beyond the statutory period, financing should not be used to shift the economic burden of that delay onto the supplier without careful legal and contractual review.

The question is:

What was agreed, who received the financing benefit, and what does the underlying law permit?

Which route makes sense?

Situation	Starting point
Supplier does not need early cash	Normal timely payment
Supplier needs early liquidity	TReDS / factoring / receivable discounting
Buyer wants supplier paid early	Reverse factoring / supply-chain finance
Buyer needs working capital	Bank finance + timely supplier payment
Buyer wants credit beyond statutory period	Legal review before structuring
Invoice is already overdue	Regularise default; financing is not a cure

 

Figure 5: Choosing the route for an MSME invoice

Five questions before signing

1.       Is early cash genuinely required?

2.       What is the statutory payment date?

3.       Who is the actual financier and is there recourse?

4.       What exactly is each charge—interest, discount, commission or service fee—and what TDS/GST treatment follows?

5.       Can the transaction be reconciled from invoice to final settlement?

If these answers are not clear, the structure is not ready.

Year-end control

From February onwards, buyers should maintain an invoice-level report showing:

supplier/Udyam status | acceptance date | statutory due date | amount | financing route | financier | funding date | settlement date | interest/default status

This is particularly important at year-end because payment status can affect statutory interest and tax deduction.

Retain Udyam evidence, purchase terms, delivery/acceptance records, financing or assignment agreement, recourse terms, financier identity, settlement statement, TDS/GST workings, payment evidence and final reconciliation.

CA S.Ahuja Perspective

TReDS, factoring, invoice discounting and supply-chain finance sit at the intersection of MSMED law, factoring law, contracts, treasury, income-tax, GST and accounting.

The wrong question is: “Which financing route has the lowest rate?”

The better question is:  “Which structure gives the supplier liquidity, gives the buyer commercially sensible funding, and keeps the statutory payment obligation clearly within the law?”

The real distinction is between financing a receivable and financing a delay.

Finance the liquidity problem. Do not finance the statutory default.

For the CFO or business owner:  Pay the right party, through the right structure, at the right time, at a total cost that can be defended.