How Caution Money Works on the GeM Portal: Step-by-Step Guide?

Caution money is a mandatory requirement for sellers registering or updating their profile on the GeM portal. It is a one-time, refundable deposit that sellers must pay to participate on the platform. The purpose of this deposit is to ensure that only genuine businesses operate on GeM, thereby improving transparency and overall trust in the buying and selling process.

While fees for registration and subscription are expenses borne by sellers, caution money is a deposit. You are required to deposit it into the GeM for as long as you use your account. The money is refunded to you if your seller account is closed or deactivated.

The caution money in GeM is not a fixed amount for everyone. It varies based on the seller’s annual turnover.

All sellers registering on the GeM Portal are required to deposit a one-time amount as caution money. The amount depends on your annual turnover and the type of business. Here’s how this works:

Caution Money Based on Seller Turnover

• Sellers with an annual turnover of more than ₹10 crore are required to deposit ₹25,000.
• Sellers with an annual turnover of more than ₹1 crore but less than ₹10 crore must deposit ₹10,000.
• Sellers with an annual turnover of less than ₹1 crore are required to deposit ₹5,000 as caution money.

Sellers Exempted From Paying Caution Money

Certain categories of sellers are exempt from depositing caution money on the GeM Portal. These include Self-Help Groups (SHGs), Micro and Small Enterprise (MSE) women entrepreneurs, MSE sellers belonging to Scheduled Castes (SC) or Scheduled Tribes (ST) categories, Farmer Producer Organisations (FPOs), One District One Product (ODOP) sellers, artisans, and weavers.

Caution Money for Sellers With No Turnover

In cases where there is no recorded turnover, the seller has to pay as per the lowest slab, which is ₹5,000.

Here’s how to pay caution money in the GeM Portal:

Step 1: Log In to the GeM Portal

Start by logging in to your GeM seller account using your registered credentials. Once logged in, navigate to the caution money dashboard from your seller profile or account settings.

Step 2: Select the Bank to Open the Caution Money Account

On the caution money dashboard, you will be prompted to select a bank to open your caution money account. Choose the preferred bank from the available options and proceed.

Step 3: Open the Caution Money Account

The caution money account is opened instantly after bank selection. Once created, you will be able to view the account details directly on the GeM Portal, including the account number and related information.

Step 4: Add Funds to the Caution Money Account

Next, add the required caution money amount to the account. When you choose to fund the account, you will be redirected securely to the selected bank’s payment interface to complete the transaction.

Step 5: Generate Challan and View Statement

After adding funds, return to the GeM Portal and click on Generate Challan to create the payment record. You can also view the transaction statement from the same section for reference.

Step 6: Confirm Account Balance Update

Once the payment is successful, the account balance is updated automatically on the GeM Portal. The updated
balance will be visible to you on the caution money dashboard. Once you see the balance, the payment has been completed.

• GeM can deduct or forfeit this amount, either partially or fully. Here are some situations where caution money may be forfeited:
• Caution money may be forfeited if the buyer cancels an order because the seller did not deliver the goods or services within the delivery period, and no invoice was generated for the order.
• Caution money may be forfeited if a seller rejects or does not accept a Direct Purchase or L-1 Purchase order within the defined timelines, leading to automatic cancellation of the order.
• Caution money may be forfeited if the seller withdraws a bid submitted on GeM during the bid’s validity period.
• GeM may forfeit caution money if the seller fails to execute a GeM contract or neglects to perform contractual obligations. This applies specifically to contracts where there is no provision for Performance Security or Performance Bank Guarantee (PBG).
• If the buyer cancels the order after the delivery period has expired plus an additional 15 days, and the seller has generated an invoice but failed to deliver the order, the caution money may be forfeited.
• Failure to furnish the required performance security or PBG as per GeM e-bid or reverse auction conditions can also lead to forfeiture of caution money.

The GeM Portal requires caution money to maintain transparency in the marketplace. Here are some ways caution money in GeM helps ensure a smoother and more efficient buying and selling experience:

Encourages Serious and Genuine Sellers

Since sellers are required to deposit a refundable amount, only those who are serious about doing business on GeM tend to register. This helps filter out fake and inactive sellers. Without such a requirement, the portal could be full of unreliable sellers.

Reduces the Risk of Fraud and Misuse

Caution money discourages fraudulent activity. Sellers are less likely to abandon orders or misuse the platform for their vested interests.

Builds Buyer Trust and Platform Credibility

The deposit ensures that only committed sellers join the platform. This, in turn, enhances buyer trust and encourages more and more people to use the GeM Portal for procurement.

Aligns Business Size With Financial Responsibility

Caution money is structured in progressive slabs. The higher the annual turnover, the higher the deposit, and vice versa. This ensures a fair and just system and allows businesses of all sizes to operate on the GeM Portal.

Refundable and Simple for Sellers

Unlike registration or subscription fees, caution money is fully refundable. If a seller decides to deregister or stop operating on GeM, the deposit can be claimed back. This makes it easy for sellers to participate and pay the caution money.

Easy for GeM to Monitor and Maintain Transparency

Even from the portal’s perspective, caution money helps maintain discipline and transparency. It allows GeM to hold sellers responsible for defaults and protect buyers, without facing liabilities.

Caution money plays an important role for sellers on the GeM Portal. Here’s how:

Offers Access to Portal Features

Without depositing caution money, sellers cannot access the portal’s full range of features. This includes listing your products or services, participating in bids, conducting direct purchases, receiving new orders, and more. Paying the caution money is a mandatory step to unlock these functions and operate effectively on GeM.

Impact on Small Businesses

For micro and small businesses, especially startups with limited capital, paying caution money can be a challenge. It is important to be aware of this requirement before registering so you can plan your finances accordingly.

If you do not deposit the required caution money by the specified date, your seller account on the GeM Portal will face restrictions. The portal will turn off the direct purchase option. You will also not be able to place bids or appear in any product or service listings.

Your GeM account will be inactive for transactions. If the caution money is not deposited for an extended period, the portal may deactivate your seller account altogether. In this case, you will no longer be able to use the portal for selling.

Here are some key points every seller should know:

No KYC Required to Open the Account

You do not need to complete any KYC to open a caution money account. The bank opens the account instantly without asking for documents or verification from the seller.

Limited Access to Funds

Funds in the caution money account can be withdrawn only under specific circumstances, either when your GeM account is being closed or if you deposit more money than you need based on your annual turnover.

Account Linked to GeM Escrow

The caution money account is a sub-account of the GeM escrow account. It is created solely to hold the caution money on your behalf and cannot be used for any other purpose.

Knowing how to add caution money in the GeM Portal is essential for every seller. It is one of the first steps you must complete when opening your account. Without depositing caution money, you will not be able to list products, receive orders, or participate in transactions.

Make sure you understand the exact amount you need to deposit and complete it as early as possible. Even after depositing caution money, it is important to follow all portal rules to avoid mistakes that could freeze or deactivate your account.

As a business owner, following GeM is only one part of protecting your enterprise. Having the right business insurance policies is equally important, no matter where you operate.

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