Taxes Subsumed under GST & the Components of GST

With the Goods and Services Tax (GST) set to roll out on July 01, 2017, expectations and anxieties are high with individual taxpayers and businesses trying to gear up for a brand new tax regime.

Components of GST

To be able to make the most of the new indirect taxation law, taxpayers need to understand its components well.

The GST Council which was set up by the Central Government to execute GST implementation, has proposed a new tax framework-structure for GST.

First and foremost, GST represents a “One Nation, One Tax” outlook, which is necessary to do away with multi-tax regimes that lead to inefficiencies such as cascading taxes, levy of excise at the point of manufacturing and lack of uniformity in tax levies. Currently, Goods and Services are taxed under various disparate tax categories such as Excise Duty, VAT or Central Sales Tax, Service Tax (in the case of services dispensed) and Customs Duty (for imports). Some of these taxes are levied by the Central government, and others by the state government. A unified approach— GST— will help do away with these complexities by enabling a single tax regime right from manufacturer to consumer. It is important to know that GST is a destination-based tax i.e., the tax is credited to the taxation authority whose jurisdiction prevails at the place of consumption (also called the place of supply). Moreover, GST will be levied on value-addition, by allowing for input tax credit at each stage of the transaction chain.

GST Structure

GST will have four slabs of indirect taxation: 5%, 12%, 18% and 28%, with goods and services attracting any of these slab percentages depending on various factors such as being a luxury good/service. The current indirect tax structure will give way to a Dual GST model, with the Centre and States simultaneously levying GST on a common tax base, as follows:

  • Central GST Bill (CGST): For intra-state transactions related to supply of goods and/or services, levied by the Centre.
  • State or Union Territory GST Bill (SGST or UTGST): For the supply of goods and/or services in the States and Union Territories, levied by the States/Union Territories.
  • Integrated GST Bill (IGST): For inter-state transactions and imports related to supply of goods and/or services, carried out by the Centre.

Under this structure, the CGST and SGST/UTGST will be levied simultaneously on the same price or value. Here is an example of how this will happen: Consider a steel supplier who manufactures in Jharkhand and supplies steel to another company within Jharkhand. Let us assume the rate of CGST to be 10% and SGST to be 7% and the selling price of the steel to be Rs. 100. The supplier will charge the client a CGST of Rs 10 and SGST of Rs 7. The supplier needs to deposit Rs 10 in his Centre taxation account, and Rs. 7 in the State taxation account. Due to input credit facility, the supplier has the option of setting off the total payment (Rs 17) against the tax he paid on his purchases or inputs. However, these credit values cannot be mixed—for CGST-setoffs he can utilize only the CGST credit; for SGST-setoffs he can utilize only SGST credit.

Dual GST

A Dual-GST is particularly suitable for the Indian economy because in India both the Centre and States are assigned the duty of levying and collecting taxes. So far, the Constitution clearly demarcated the tax levying and collection duties of the Centre and State, with the Centre responsible for taxing the manufacture of goods, and the State responsible for taxing the sale of goods. For services, only the Centre was allowed to levy Service Tax. To override this segregation of power, and enable the smooth implementation of GST, a Constitutional amendment (Constitution Act, 2016) was made so as to simultaneously empower the Centre and the States to levy and collect this tax. With this amendment, the Dual GST regime will now align well with the fiscal federal protocols of India.

Taxes subsumed under GST

The following are the disparate taxes (levied by the Centre and States) which will be subsumed under the new dual-GST regime.

(A) Taxes currently levied and collected by the Centre:

  • Central Excise Duty
  • Duties of Excise (Medicinal and Toilet Preparations)
  • Additional Duties of Excise (Goods of Special Importance)
  • Additional Duties of Excise (Textiles and Textile Products)
  • Additional Duties of Customs (commonly known as CVD)
  • Special Additional Duty of Customs (SAD)
  • Service Tax
  • Central Surcharges and Cesses so far as they relate to supply of goods and services

(B) Taxes currently levied and collected by the States:

  • State VAT
  • Central Sales Tax
  • Luxury Tax
  • Entry Tax (all forms)
  • Entertainment and Amusement Tax (except when levied by the local bodies)
  • Taxes on advertisements
  • Purchase Tax
  • Taxes on lotteries, betting and gambling
  • State Surcharges and Cesses so far as they relate to supply of goods and services

The taxes to be subsumed were decided after intense debate and consideration of some core principles that were in line with the GST ethos. Each tax was first examined to ensure it qualified for indirect taxation and was related to the supply of goods or services. Moreover, a tax which was to be subsumed needed to be part of the transaction chain right from imports through manufacturing to the provision of services and the consumption of goods/services. Another important criteria to allow a tax to be subsumed was that the subsumation should lead to free flow of tax credit at Intra- and inter-State levels. Also, the revenue considerations of both the Centre and the State were taken into perspective while arriving at the final list of subsumed taxes.

Clearly, the change is huge, and the sooner consumers and businesses get familiar with the implications on Term finances, the better they will be equipped to benefit from the new GST reforms.

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Pay Later: Features

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Secured Vs Unsecured Business Loans: The Difference and How it Matters for SMEs

To sustain their business growth, small and medium enterprises (SMEs) sometimes need additional working capital, and the most direct way of getting it is to apply for a loan.

With business loans coming from banks, non-banking finance companies (NBFCs) and private money lenders, SMEs have multiple sources to get funding for their operations and expansion. However, these credit options have their pros and cons and should be understood to choose the most helpful alternative.

Secured vs Unsecured Business Loan

Most companies are familiar with the idea of a secured business loan that requires them to offer the lender some collateral as a security against the funding provided. The credit here is issued when the borrower hypothecates a financial asset to the lender. The hypothecation ends only when the entire principal, together with interest and any other associated charges, is fully paid off.

Banks and most other conventional sources of finance are more willing to offer secured loans because from the lender’s point of view, these carry less risk than unsecured funding.

The main advantage for a borrower taking a secured business loan is that the interest on such credit is lower since a guarantee of their asset backs the loan.

Conversely, the challenge is that lenders, particularly banks, accept only selective assets as collateral. They need to ascertain that such an asset can be liquidated in minimum time in case the lender defaults on payment. Due to this condition, many SMEs find it difficult to get secured loans. They may not have assets that are considered as relevant or sufficiently valuable by the lender.

An unsecured business loan, on the other hand, is granted without any collateral. A non-banking finance company with a digital lending model offers such loans based on the creditworthiness of borrowers. If a business has a successful operational history of at least one year, and there are no blots on its previous credit history, it is eligible to get its unsecured business loan from a digitally operating NBFC, also known as a FinTech company.

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For an SME that does not have financial assets to hypothecate and needs faster access to cash, will find unsecured business loan better than secured funding.

Here is a summarised view of the features for Secured Vs Unsecured Business Loan:

Secured Business loans from Institutional lenders Unsecured business loans from FinTech companies
Collateral required Backed by a financial asset for collateral No collateral / Security
Advertised interest rate (annual) Between 12% and 24% Between 18% and 24%
Loan processing fee >= 2% <= 2%
Extra charges May have extra charges for documentation, loan insurance and other statutory requirements No extra or hidden charges
Time to get funds into account 1 to 6 weeks 72 hours
Loan application process Digital and paper-based, document-intensive loan application Fully digitalised loan application and document submission
Repayment of loan Only through EMIs Flexible repayment options

Capital Float is a leading FinTech company that asks for no collateral for business loans. We have customised our loans for a variety of business purposes and working capital needs. Our short-term unsecured business loans are issued purely on the creditworthiness of the borrowers and the potential of an organisation to pay back in time. We evaluate every loan application within minutes of its submission to provide the decision on the same day.

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If you have an attractive business opportunity to capitalise upon, do not put off your plans. Talk to a representative in our customer service team at 1860 419 0999 and avail yourself of the benefits of a loan without collateral.

Oct 24, 2018