Overview of GST and Important Timelines

The Goods and Services Tax (GST) is proposed to be implemented from July 01, 2017, and will effectively change the face of indirect taxation in India. Some of the key benefits expected include a simpler and more transparent tax system that will reduce tax evasion and boost revenues; more competitive manufacturing, especially in the MSME sector, thanks to reduction in tax cascading; and improved GDP due to a wider coverage of goods and services. This attempt towards bringing to life a “One Nation, One Tax” legislation will have far-reaching implications on every citizen, and will impact business finance and personal finances too. This is especially true for SMEs, as they will see a direct impact on their working capital. It is therefore prudent to plan for this crucial event.

Here is all you need to know about the GST rollout.

What is GST

GST is a unified system for indirect taxation, leading to the establishment of a new four-tier indirect tax structure that replaces the existing indirect tax regime. Essentially, four new indirect tax slabs will come into effect, i.e., goods and services will hereafter be taxed according to the slabs of 5%, 12%, 18% or 28%.

Rate of Indirect Tax Goods/ Service
Exempt Goods of mass consumption such as grains and milk
5% Essential items such as edible oil, tea, coffee, insulin, incense sticks, etc. that are exempt from excise duty and are charged at a VAT of 5%. Certain processed foods like sauces, pickles, and preserves as well.
12% Goods currently taxed at 9% to 15% such as processed food and computers
18% Goods currently taxed between 15% and 21% (soaps, smartphones, utility electronic items and, industrial inputs).
28% Luxury goods such as SUVs, select consumables (aerated drinks, tobacco), white goods (AC, fridge) and goods that fall under the current tax bracket of 30% to 31%. Luxury and select consumables will attract an additional cess.

These four structural slabs allow a provision to charge a maximum of 40% GST rate, i.e., a combination of 20% Central GST and 20% state GST.

Services will be taxed at a standard or default tax rate of 18%. Only five luxury services, i.e., five-star hotels, movie tickets, racing and betting (racing and casinos) will fall in the 28% tax bucket. E-commerce companies will be subject to 1% tax collected at source.

The build-up to the GST: A track of timelines

The story began with the Central Government releasing the Revised Model GST Law for public purview on November 26, 2016, and the setting up of the GST Council to discuss and approve the Bill. Thereafter, the Council met on subsequent occasions to discuss and approve the section terms, and targeted a rollout date of April 01, 2017. The latest is a meeting held on 11th June, wherein the tax rates for 66 items have been reduced. A rollout date of July 01, 2017 has now been set. As a result, four legal bills have been presented and passed for different categories:

  • Central GST Bill (CGST): For supply of goods and services by the Central Government within the boundaries of a state.
  • Integrated GST Bill (IGST): For supply of goods and services between different states, carried out by the Central Government.
  • Union Territory GST Bill (UGST): For supply of goods and services in the Union Territories.
  • The Compensation Bill: To govern the provision of compensation for revenue losses brought on by GST implementation, over the next five years from implementation.

All four bills have been passed in the Lok Sabha and subsequently the Rajya Sabha after a series of changes at the Centre. These bills have received approvals from 16 state assemblies with Delhi being the most recent.

Rules and Acts under the GST

The Government is also in the process of driving the GST Council to put together rules and acts for GST implementation. Following are the GST rules passed till date: Composition Rules, Valuation Rules, Transition Rules, Input Tax Credit Rules, Invoice Rules, Payment Rules, Refund Rules, Registration Rules and Return Rules.

Proposed outcomes of the GST for the Government

According to Finance Minister Arun Jaitley, India will evolve to be a more tax-compliant society thanks to the GST. He also clarified that the GST would not lead to inflation, addressing the Opposition’s concerns in the Rajya Sabha.

Here are some of the key benefits of GST:

  • GST will cover the GDP more comprehensively by covering a wider base of goods and services A single indirect tax regime will be instrumental in removing cascading taxation, i.e., tax payment upon tax, or multiple taxation.
  • GST will eliminate any direct interaction between the assessing authority and the tax payer by standardizing and automating processes, and will interlink incentives for compliance, making the tax system more accountable.
  • Overall and on an average, tax slabs may see reductions and the industry may benefit from the greater cash flow that will ensue.

Despite these proposed gains, a closer look at the GST reveals certain drawbacks. Four slabs is a significant number of tax slabs for a unified tax regime, and the tax rates appear to be high. These factors are likely to lead to tax evasions and legal battles.

Proposed outcomes of the GST for tax payers and businesses

For businesses, the implications vary. The “Place of Supply” and the “Time of Supply” are two important considerations that businesses must reflect on.

Goods and service providers will be subject to the tax slab depending on the “Place of Supply”. If the “Place of Supply” is intra-state, then each company entity will need to register separately for the GST in each state of operation, and will be liable to a mix of CGST and the respective State’s SGST. For “Place of Supply” being inter-state, the business will need to register in the state of origin and avail IGST in the remaining states. This makes it imperative for businesses to register correctly to levy the appropriate taxation rate.

Business norms for supplier management will change, with input credit being made available to businesses, but compliance requirements will become more stringent, leading to additional costs for businesses. Businesses must therefore be prepared to plan their cash flows better in light of the GST implementation. This is particularly true with regards to input tax credit, which can have strong implications on working capital for SMEs. This might create a cash crunch in the short term, but will equalize over time.

With the GST rollout fast approaching, it is best to stay informed and be prepared for this sweeping change. We at Capital Float can help you do just that: Visit our GST blog to know more about GST and keep track of latest.

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Offers and Benefits at GIFF

We understand your working capital needs as an SME, and hence bring you the best of credit products in a comprehensive finance bonanza that extends from July 1 to September 30. Capital Float’s Great Indian Finance Festival or ‘GIFF’ offers you a one-stop shop for your working capital needs where you can choose loans with easy terms in an informed and beneficial way.

Why GIFF?

Taking a loan can be a stressful and arduous process for small business owners—from lengthy applications to intense verification and delayed disbursals. We at Capital Float know that timing makes all the difference. We wish to empower you to do what you do best—focus on your business. So let us take care of all the funding issues. You can focus on fuelling your ambitious plans while we power your growth engine by offering you the best of credit lines.

Here’s What You Gain

Not only does the Great Indian Finance Festival mean ease and speed of credit, it translates to something much more. It makes life easier for the growing pool of SMEs we engage with.

Gold: Avail a loan in the Flash Sale, and walk away with gold worth up to ₹10,000, depending on the loan amount borrowed.

Plummeting interest rate: It’s time to rejoice and tap into a great opportunity. Interest rates will be as low as 16%. A great boost for your business at a super-affordable rate is waiting round the corner!

Speedy application process: Now, there’s no need to wait in long queues at the bank. If you have an Internet connection, you can avail the best loan for your business on your smartphone, tablet, or from the comfort of your desktop. It takes less than 10 minutes to apply, and our cutting-edge processes help us disburse your loan in less than 3 days.

Let’s Celebrate Credit

We have already devised credit products that are attuned to the needs of small and medium enterprises. Here is what we have curated for the three-month online finance bonanza:

Merchant Cash Advance: Whether you are a restaurateur or a retail owner, there’s a high chance a majority of your revenue comes from clients’ card payments. You may then need to have consistent card settlements and short-term investments to meet your working capital needs. Merchant Cash Advance is your go-to loan, allowing you to access quick finance of up to Rs 1 crore, depending on your monthly card settlements. What’s more, you can avail of a loan that’s up to 200% of your monthly sales from card payment machines. In addition, the loan tenure ranges from 6 months to a year, on flexible payment terms. Fill out an application form in 10 minutes, get it verified within hours and get funds in as little as 3 days! All this happens thanks to our trusted partnerships with point-of-sale card machine vendors such as Pine Labs, Mswipe, ICICI Merchant Services, MRL Posnet and Bijlipay.

Unsecured Business / Term Loans: Business is about passion, but you may not always have received the backing so far. Our Term Loans and Unsecured Business Loans are tailor-made for you. We understand the worthiness of a positive cash flow and, based on this, are willing to lend you the short-term funds you need to grow and diversify. Our Term Finance helps you meet your working capital needs from Rs 1 lakh up to Rs 50 lakh over a tenure of 6 months to 3 years. Moreover, you don’t need to pledge collateral to get the loan.

Online Seller Finance: We understand the competitive world of e-commerce— the shrinking lead times, fluctuating levels of inventory, constantly changing pricing decisions and sky-high customer expectations. Our Online Seller Finance loans are designed for eCommerce merchants operating on online marketplaces. The funds received can be used to expand to other product segments, increase inventory or pay suppliers. We have partnered with leading online portals like Amazon, PayTM, Myntra, Shopclues eBay, etc. to service merchants like you operating on these marketplaces. We customise this credit line to your unique business needs, by analysing your monthly sales, projected revenue and other factors.We provide an unsecured loan up to Rs 1 crore or up to twice your monthly sales which mean that you no longer have to worry about expensive collateral to build your business online. No pre-closure charges and flexible repayment terms like fortnightly repayment will take your mind off financial burdens and let you focus on business growth. With the right documents and data, our Online Seller Finance can be disbursed within 3 working days.

Each of these credit offerings will run under Flash Sales, so watch out for announcements on the site. Each Flash Sale will run for 3 days and you can win exciting prizes apart from big discounts. So gear up to catch the right moment, and the right loan offer.

Clearly, GIFF is a goldmine of opportunities designed to serve SMEs across India. We will go along with you every step of the way, to help you realise your business ambitions! Visit www.capitalfloat.com/giff to know more.

Oct 24, 2018

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Impact of GST on Working Capital for Businesses

The Goods and Services Tax or GST is ready for a rollout on July 1, 2017. Various rules, procedures and action items have already been outlined for the transition to the new, unified system of indirect taxation. Businesses and taxpayers alike are expected to embrace these changes and get ready for the new normal—the era of standardized taxation. GST is expected to impact businesses significantly, especially those with cross-location presence, with operations across states. Both large and established goods and service providers, as well as SMEs, will be significantly impacted, both in terms of financial and operational sustainability.

What is GST?

GST will enable standardization of the indirect taxation under four slabs—5%, 12%, 18% and 28%. The change in tax rules will have a direct impact on cash flows and working capital loans for businesses. From the line of credit to taxation levels and timelines, businesses will have to reassess and realign themselves. On the one hand, local and Central taxes such as VAT, Service Tax, Excise Tax and others will be subsumed; on the other hand, tax slabs may increase; for example, from 15% under Service Charge to 18% under the third GST slab. As a result, immediate available working capital finance levels will change.

GST and working capital

Working capital is a key factor in the health of a business. Businesses should focus on periodically assessing their working capital needs. The impending GST rollout makes this even more imperative. This is because the tax bucket your business falls under will change depending on various factors such as the nature of business, locational spread and more. Not just this, the rules and timelines for availing a line of credit will also be revamped under the new GST regime. This means that cash flow will be impacted, and you may need to look for new sources of working capital finance. After all, sustaining day-to-day business operations is essential to growing your business, especially if you are an SME with low financial reserves. Working capital is, in a way, a reflection of the financial health of your company.

Here are some of the key changes GST is expected to usher in:

  1. Input tax credits will open up: According to the current tax system, input tax credit is available only on inputs that are related to taxable output. For expenses that are not related to taxable sales, input credit cannot be availed. However, under GST, a feature called the “Furtherance of Business” has been introduced. Under this, credit is allowed for any kind of business input, irrespective of whether it is directly used for “taxable sales”. This is a positive development and increases the scope for business to avail an additional line of credit. As a result, the immediate cash requirements will reduce, and working capital flow will get better. Businesses must closely study the GST clauses to understand how to benefit from input credit across newly added areas.
  2. Timeline of tax payment: Under the new GST rules, the tax is levied when the stock is transferred. As a result, businesses will not be able to claim tax credits till the time of sale, which may result in a huge time lag. Working capital levels might experience a drop during this time. Evaluating working capital finance specialists such as Capital Float is recommended, to ensure that business operations remain unaffected.
  3. Moving goods will be easier: Under the current tax regime, a lot of time and effort is spent by companies who have multiple presence across states (warehouses, offices, factories etc.)—they need to adhere to multiple laws such as octroi, CST and so on while moving goods across state borders. This complexity adds to the cost of doing business across states. With GST, this movement of goods across the country will be simplified and more cost-friendly.
  4. Imports will be costlier: If your company is in the business of procuring raw materials from outside, you may experience escalated costs soon. The current import duty rate of 14% will be replaced by a standard GST rate of 18%, making imports expensive.
  5. Reprimands for suppliers’ non-compliance: The input tax credit levels will depend on whether your suppliers comply with taxation and financial norms. This will make it imperative for your suppliers to declare their outward supplies along with their tax payment.  You will also be held accountable if your supplier fails to furnish valid returns. This is an unfavourable practice for your business since in the event of their non-compliance, your input credit tax claims can be reversed and you may have to pay interest. It is, therefore, important that you assess your vendor base from a compliance perspective to avoid impacting your working capital

These are some of the direct ways GST will impact the working capital of your business. Should you need to augment your working capital to ensure a healthy cash flow under GST, you can turn to new age fintech lenders like Capital Float who are creating innovative and customised financial products. Our term finance offering, for example, is tailored to ease your working capital crunch with features such as zero collateral requirements, 3-day loan disbursal and customized credit criteria. Click here for more GST Blogs.

Oct 24, 2018

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Capital Float looks to expand to over 100 cities – Livemint

Capital Float plans expansion in over 100 cities as it bids to offer loans for small brick-and-mortar store owners for a bigger share of the growing financial lending market

Capital Float, which is currently focused on offering loans to small and medium merchants in Tier 1 and metro cities, is now looking to concentrate more on tier 2 and tier 3 cities.

Mumbai: SME lending platform Capital Float, run by Zen Lefin Pvt. Ltd, is looking to expand its reach to over 100 cities and venture into newer categories like loan for small brick-and-mortar store owners, as it eyes a bigger share of the growing financial lending market in the country.

“We are expecting a 10 times growth by the end of March 2017, adding 15,000-20,000 customers (borrowers) cumulatively across all the loan products segment,” said co-founder and managing director Sashank Rishyasringa.

The company has offered loans to 3,000 borrowers until now.

Founded in 2013 by Rishyasringa and Gaurav Hinduja, Capital Float has disbursed loans amounting to over Rs.400 crore.

A technology-led non-banking financial company (NBFC) underwrites unsecured loans online to start-ups, business-to-business (B2B) providers, manufacturers and e-commerce merchants through its own books.

It currently gets 33% of the business from online vendors.

With the aim of extending its focus to small mom-and-pop or kirana shops along with micro small and medium enterprises (SMEs), the company has already made a mobile application that approves loans in less than eight minutes.

Loans to kirana shops could be in the range of Rs.50,000-100,000.

India currently has minimal lending options for small businesses. These businesses are largely ineligible to receive any financing from banks or NBFCs.

Traditional banks ask for collateral, financial statements and bank statements and do not offer small ticket size loans.

Capital Float is trying to solve the problem by lending money to small businesses that might not have collateral, significant revenues or years of experience.

The company offers an alternative for these small traditional business houses that have largely banked on chit funds and local money lenders to borrow money from.

Identifying a need to extend credit to such under-served, Rata Tata, Vijay Kelkar (former finance secretary and chairman of the National Institute of Public Finance and Policy) and Nandan Nilekani (co-founder of Infosys Ltd and the architect of Aadhaar) will soon start a microfinance institution named Avanti Finance, Mint reported on Monday.

Capital Float, which is currently focused on offering loans to small and medium merchants in Tier 1 and metro cities, is now looking to concentrate more on tier 2 and tier 3 cities. “I expect a significant contribution of these cities (tier 2 and tier 3) to the company’s growth, which could be around 33% by next year,” Rishyasringa added.

The loan products currently include working capital finance to online sellers for 90-180 days, long-term finance to merchants for six months to three years, bill discounting and taxi financing (loans for cab drivers), among others.

Broadly, the company has partnered with e-commerce websites, payment gateways, cab services, amounting to 50 partnerships, including with Snapdeal, Shopclues, Paytm and Uber to offer loans to a large pool of small businesses and merchants who work with these partners.

The company is also eyeing profitability in the next 12 months on the back of a robust demand for loans by SMEs.

To enable faster disbursal of loans, the company launched its mobile application two to three months ago, which is privately available to businesses through partners.

While loan applications were initially accessible only through the website, Capital Float is now seeing that mobile application and mobile browsing has grown to contribute 50% of loan applications, said Rishyasringa.

The mobile application is built on four technology pillars of India Stack—Aadhaar-based authentication, an electronic process of know-your-customer (e-KYC), electronic signature (e-Sign) and unified payment interface (UPI).

India Stack is a set of publicly available application programming interface (API)—that enable companies to build applications and businesses based on these four pillars.

The fin-tech company receives a loan enquiry every three minutes, said Rishyasringa. An inquiry implies a prospective borrower initiating a loan application process.

While the company remains stringent in extending loans, by approving 20% of the applications, total loan disbursal amounts to an average of Rs.70 crore per month.

Additionally, the average loan amount extended to a merchant is Rs.10 lakh at an interest rate of 16-19%, for a tenure of between 60 days to 2-3 years. The company maintains and targets to continue to maintain a non-performing asset (NPA) proportion of less than 1% of its total loan amount.

NPA is the proportion of the amount of bad loans to the total amount of loan disbursed.

Backed by George Soros’s Aspada Investment Co., SAIF Partners and Sequoia Capital, the company has raised $42 million, including $25 million in series B round of funding in May.

Other players in this segment that Capital Float competes with are Capital First Ltd, NeoGrowth Credit Pvt. Ltd and SMEcorner.in (Amadeus Advisors Pvt. Ltd). In July, NeoGrowth raised $35 million from IIFL Asset Management, Accion Frontier Inclusion Fund managed by (Quona Capital) and Aspada Investments, along with other investors, reported PTI.

The original article is written by Arushi Chopra. Click here to read the original article.

Oct 24, 2018