The test that decides it
The distinction is simpler than it feels: if what you bought becomes stock you'll resell, it's a purchase bill, tied to a vendor and adding to your inventory. If it's consumed running the business — rent, fuel, printing, courier — it's an expense.
Both can carry GST and both can be ITC-eligible, which is exactly why the two get confused — the tax treatment looks similar even though the accounting purpose is completely different.
Why the mix-up matters
Recording stock as an expense means it never appears in your inventory, so your stock report understates what you actually hold. Recording an expense as a purchase bill against a vendor pollutes your payables and vendor-spend reports with numbers that were never really trade payables.
Neither mistake breaks your GST total, which is exactly why they go unnoticed for months — the damage shows up in the reports built on top, not in the return itself.
A quick rule of thumb: if you could sell it as-is to a customer, it's a purchase bill; if you're using it up to run the business, it's an expense.
LedgrBook handles this automatically. The parts of this guide your bills already know.
See how →General information, not professional tax advice — confirm specifics with your CA.
