What is Circular Trading?

What is Circular trading?

• Circular trading refers to fraudulently availing input tax credit by traders by issuing of invoices without availing any real goods or service.
• In simple words, circular trading refers to the transaction of selling and buying of goods (without actual movement of goods) through shell companies.
• Circular trading is a circular which is being formed by a group of companies engaging themselves in fake sales transaction by producing fake sale invoices.
• The main objective of circular trading is inflating turnover of the business. However, through circular trading, companies may also aim to:
  • To increase the valuation of the company/business;
  • To benefit higher loans from the Banks or Non-Banking Financial Corporation (NBFC);
  • To bring black money into the system;
  • To avail fake input tax credit.

Q1) What are Non-Banking Financial Corporations?

Non-banking financial companies (NBFCs), also known as non-banking financial institutions (NBFIs) are entities that provide certain bank-like financial services but do not hold a banking licence. They are not subject to the banking regulations and oversight by federal and state authorities adhered to by traditional banks.Investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds, and P2P lenders are all examples of NBFCs.

Source: Financial Express

‹ ›