1. Because of Income Tax Laws
Income Tax Department always asks the large business players to confirm their ledger accounts of their suppliers. Now the small parties who are not registered under GST generally do not maintain their books of accounts and therefore they are unable to provide ledgers of accounts.
2. Fails in Verification Checks
Small businesses that are not registered under the GST, cannot open a business current bank account. Therefore, they do business on their savings account.
Now, a savings account only represents a person and not a business.
Therefore, paying in the savings account always keeps the risk of fraud, and to avoid this fraud large players verify that the vendor must have a current account.
3. Cannot Authenticate Unregistered Vendor
If a business is registered under GST then anyone can check their business details with their GST Number. Thus, registering under GST creates a trust that the party is regulated by the government & it helps to do the business. However, an unregistered vendor cannot be verified easily.
4. Purchases from Unregistered Dealers Increases Cost
Only GST registered businesses can transfer the benefit of ITC. The GST system is only designed to provide ITC benefits to suppliers, which leads to remove the tax cascading effect & reduce the cost. However, purchases from unregistered dealers increase the tax burden and increase cost, therefore to save the cost & taxes, serious business players always purchase from GST registered businesses.