Important GST Definitions, Terms and Glossary

The GST is ready for implementation and brings with it a slew of changes that indirect tax payers and business owners need to get familiar with. Not only are businesses required to register themselves under the GSTN, they must also reassess their business in accordance with certain new terminologies to determine how the GST impacts them. A few of the important GST definitions and the registration process are briefly specified here to help you get started.

GST terms to know 

Certain essential definitions have been mentioned under the Model GST Law, which was first released in June, 2016, and then modified and released again in November, 2016.

Business : Definition: Business refers to trade, commerce, manufacture, profession, vocation or any other similar activity, including transactions related or incidental thereto, irrespective of volume or frequency, as well as supply of goods/ services in connection with commencement or closure of business.

The definition is quite wide and seems to be borrowed from State VAT legislations. Some parts have been modified to include transactions in services.

Place of Business : Definition: (a) A place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods. (b) A place where a taxable person maintains his books of account. (c) A place where a taxable person is engaged in business through an agent.

Since GST is a destination-based indirect taxation system, the place of business is a critical factor in determining the business model and taxation dues of a business that is present in many places.

Time of Supply : Definition: The time of supply is the earlier of the following dates: (a) Date of issue of invoice by the supplier or the last day by which the supplier is required to issue invoice or (b) Date of receipt of payment.

The time of supply is important since it determines the point of taxation i.e. the point in time when goods / services have been deemed to be supplied or services have been deemed to be provided and hence SGST or IGST apply.

Goods : Definition: “Goods” refers to every kind of movable property other than money and securities, but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

While the term “movable property” has been mentioned, it has not been defined in the Model GST Law, and one needs to refer to the General Clauses Act 1897 for this. It does not include intangible property such as intellectual property rights (copyrights, trademarks). Also, an item needs to be movable for it to be classified as goods.

Services : Definition: “Services” means anything other than goods.

The GST Model Law clarifies that services include intangible property and actionable claims but does not include money. There are separate definitions for supply of software, works contracts and leasing transactions, even though they fall in the ambit of services. The inclusion of “actionable claim” may create confusion where financial and commercial transactions are involved.

Software includes the development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software, and is treated as a service.

As far as leasing transactions are concerned, a finance lease would be considered as supply of goods, and an operating lease would be considered as a service under the Model GST Law,

Works Contract : Definition: It is an agreement for carrying on building, construction, fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or commissioning of any moveable or immovable property. Work Contract has been defined as a “Service”, simplifying its taxation procedure.

Supply : The GST has three new definitions related to “Supply”, i.e., Principal Supply, Composite Supply and Mixed Supply.

1. Principal Supply
Definition: It is the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary and does not constitute, for the recipient an aim in itself, but a means for better enjoyment of the principal supply.
It is generally the dominant supply in a bundle of supplies or a bundle of services. For example, in a mobile phone and the charger, the mobile phone will be the principal supply.

2. Composite Supply
Definition: a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

For example, goods packed with insurance and packing material is a composite supply, with the good being the principal supply. Here, there is a main supply and supporting supply, which normally go together in the course of business and enhance the enjoyment of the main supply.

3. Mixed Supply
Definition: Two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Take the case of a corporate gift pack that consists of a tie, a wallet and a pen. These are bundled in a package supplied for a single price. None of the items is dependent on the other, nor necessary to be purchased together. This is a case of a mixed supply, where the individual items, which can also be sold separately, are sold together.

Aggregate Turnover : Definition: “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

Reverse charge tax is a system where the recipient of the supply (goods and services), i.e. the client, is liable to pay the tax. Inward supplies are input supplies used as an input for manufacturing the goods or providing the service. Tax paid on input expenses can be adjusted against tax paid on output supplies, through input tax credit. This means that it cannot be treated as a part of the aggregate turnover.

Read more about GST at our GST blog for India.

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What is UBL and how we underwrite it

The SME sector in India is large and burgeoning. It contributes 45% of the industrial output and 40% of exports, and employs over 40 million people. With rapid economic growth and the impetus being given by the Government, this sector is expected to grow at a phenomenal pace, from accounting for 15% of India’s GDP in 2015 to 22% in 2018.

SMEs need funding

Despite its enviable growth, the smaller merchants and retailers face chronic cash shortage. Traditional banking offers more challenges than solutions to such enterprises. They are faced with long approval periods, demands of collateral, unsurmountable eligibility criteria and loan terms that are unsuitable to address short-term cash flow issues.

Unsecured Loans Provide the Relief

This is where unsecured loans come to their rescue. These are typically shorter-term loans that do not require collateral or guarantors. Some financial solutions are specifically designed to aid SMEs to address their working capital needs or expand their existing business. SMEs often work with limited resources and may find it challenging to pledge collateral to secure a loan. Unsecured business loans prove to be highly beneficial in this regard.

The Greatest Challenge to Overcome

Since unsecured loans by definition have no collateral to back them, a stringent underwriting process needs to be in place to ascertains the applicant’s intent and ability to repay the loan. The loan underwriting process must include the collation and verification of all the data provided by the applicant. This information is analyzed to determine the financial health of the enterprise and the creditworthiness of the individuals most closely associated with the business.

Relying on Cutting-Edge Technology

At Capital Float, we deploy cutting-edge technology to ensure that the process of loan approval is smooth, seamless and swift. This data driven process begins with the loan seeker filing an online application and uploading/giving access to all the relevant documents, including the company’s ITR, sales figures, balance sheet and cash flow statements. Our systems pull the data automatically from various external sources and populate the relevant fields. Capital Float lays specific importance to digital data available in the eco system e.g.; telly ledgers and purchase ledgers.

Apart from the documents provided, weightage is given to company ratings provided by rating agencies like CRISIL and ICRA. The bureau data is used extensively which goes beyond CIBIL scores and looks at hundreds of variables which might predict customer behavior.

The system collates all this information and draws up algorithm-based scores for each business. This initial screening process has no human intervention, since the technology is intelligent enough to identify a risky borrower and reject an application that does not meet the minimum criteria. All this is done in a matter of five minutes; whereas traditional banking could take anywhere between one to three months to decision a loan.

Once an application clears the first screening, experts from Capital Float visits the company’s premises, which could be the registered office or the factory. The experts spend time to understand the business model, the processes, the production capacity and the utilization of existing resources to gain a deeper insight into the health of the enterprise.

These inputs are also entered into the system, which uses powerful algorithms to analyze all the data being collated. These algorithms aid credit managers to take a more informed decision regarding loan approvals.

Thus, with the help of ground-breaking technology, Capital Float is able to approve loans in less than a week, while also ensuring NPAs remain exceptionally low.

Oct 24, 2018

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Projections for the Future: Top 5 Small Business Trends in 2018

Thriving amidst difficult environments has never been easy for SMEs in India, but they continue to stand tall. Despite numerous challenges in the form of infrastructural constraints and lack of access to formal credit, they contribute to 8% of the GDP. Rightly called ‘the engine of growth’ for India, SMEs have scaled manufacturing capabilities, reduced regional disparities and balanced the distribution of wealth.

Small businesses are now being increasingly associated with innovation and employment, and the figures state likewise. The micro, small and medium enterprise(MSME) sector contributes to 69% of employment in India. With the growing penetration of technology into mainstream ecosystem, these industries are at the forefront of bringing the convenience of digitalization to the masses.

The Indian economy is expected to be a $5 trillion economy by 2025, and SMEs are cutting roads towards this goal. As we enter the first financial year post implementation of GST, some interesting small business trends are touted to play an important role for a smoother growth journey to global standards.

Here are the latest business trends that you can keep in mind while setting your objectives for FY 2018-19.

Business Trend 1: Rise of Online B2B Marketplaces

E-commerce marketplaces are gradually gaining momentum worldwide, and has branched out to B2B trading platforms. While this is still at an embryonic stage in India, there is no doubt that the potential it holds is huge. According to experts, the scope of the ecommerce B2B industry is six times bigger than the B2C industry, and is estimated to be worth $620 billion industry by 2020.

Companies such as Amazon Business, Alibaba, IndiaMart, Power2SME, etc. are popular online platforms that connect B2B buyers and suppliers to fulfill their business requirements. These digital platforms have helped small businesses surpass technical and geographical limitations to procure raw materials in bulk at reduced prices and also become official supply partners to large corporations. This is one of the hottest small business trends of 2018 that will present aspiring as well as budding entrepreneurs a level playing field with industry leaders.

Business Trend 2: Personalized Customer Outreach via Automated Tech

With the oldest of the millennials attaining 35 years of age this year, the target audience has shifted by a generation. For an age bracket that has been wrought in technology, this band of consumers need more than online communication. They seek a personalized line of contact when availing services from small businesses, with 60% of them choosing emails as a preferred way to establish this connect.

Since the millennial generation has the highest buying power in the market valued at $44 billion globally, this is one audience you don’t want to miss out on. You can target them by leveraging interactive videos, engaging images, and emails customized with these elements for varying demographics. The use of intelligent virtual communication applications will help you implement this in an efficient and cost-effective manner.

Business Trend 3: Easy Access to Business Credit with FinTech Lenders

The biggest hurdle for small business owners has always been financing. For a country with 50 million SMEs, there is an unmet credit deficit of a staggering $350 billion. Traditional lending institutions are limited by conventional underwriting that caters only to a certain strata of businesses. Lack of collateral, documentation and operational history have been crippling factors that prevented SMEs from qualifying for formal finance. This, in turn, pushed SMEs to the informal sector where the high interest rates charged by moneylenders fettered borrowers to a chronic cycle of debt.

But, FinTech lenders are shifting the narrative by leveraging technology and unconventional data points to provide affordable loans to small businesses as well as consumers. With customized credit products and zero collateral requirement, these digital financiers bridge the gap that had long existed in the market.

Business Trend 4: Big Data to Drive Operations and Decisions

‘Is Big Data too big for SMEs?’- is a question that requires intensive analysis, depending on the goals that define the small business and its operations. Many SMEs see big data projects as unapproachable and sophisticated, owing to the difficulties inherent in understanding huge datasets. However, studies reveal that a calculated use of big data has a colossal impact on the growth of small businesses and has been the chassis for many popular business models.

This business trend is expected to revolutionize the SME sector by speeding its pace of development. New-age digital lenders do finance technological incorporations if it shows a direct correlation to business growth, so you needn’t worry about the funds for investing in Big Data. Check out Unsecured Business Loans for more details.

Business Trend 5: Shifted Focus on IT Security

2017 saw one of the largest cyberattack worldwide, the WannaCry ransomware attack, that caused the encryption of data on computers running the Microsoft Windows operating system and risked the exposure of sensitive data of companies in over 150 countries. Though the attack was stopped within a few days of discovery, the total damages were estimated to be in billions of dollars.

The IT industry in India contributes to a key part of the country’s economy, a significant number of enterprises will begin to invest in dedicated security systems that focus on detection and response, a shift away from conventional systems that were based on prevention. Security enhancements offered by SaaS/Cloud based platforms have become more affordable for small businesses to establish a dominant architecture for data integrity management.

Oct 24, 2018

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Revised GST Rates – with effect from 25 January 2018

The 25th GST Council was held on 18 January 2018, and the rates of 29 goods and 53 services were reduced to lower tax slabs. These revised rates came into effect on 25 January. Other highlights of the panel included the decision to divide between the Centre and State, collections worth ₹35,000 crores from the Integrated Goods and Services Tax. The proposal to bring petroleum and diesel products under the ambit of GST is likely to be considered in the next meeting.

Here are the key goods and services that have been lowered or raised into new GST slabs.  

Good/Service Present GST Rates Revised GST Rates
Diamonds & precious stones 3% 0.25%
Articles of straw, esparto or other plaiting materials, Velvet fabric 12% 5%
LPG supplied to household domestic consumers, Raw materials and consumables needed for launch vehicles, satellites and payloads, Tamarind kernel powder, Mehendi paste in cones, Tailoring services, Transportation of petroleum crude and petroleum products, job-work services for manufacture of leather goods and footwear 18% 5%
Sugar boiled confectionery, Drinking water packed in 20 litre bottles, Biodiesel, Drip irrigation system including laterals & sprinklers, Mechanical sprayer, Fertilizer grade Phosphoric acid, Bamboo wood building joinery, Transportation of petroleum crude and petroleum products with ITC credit, Metro and monorail projects, Common effluent treatment plants services for treatment of effluents, Mining or exploration services of petroleum crude and natural gas and for drilling services in respect of the said goods 18% 12%
Old and used motor vehicles(other than medium & large cars and SUVs) with a condition than no ITC is availed 28% 12%
Old and used motor vehicles [medium and large cars and SUVs] with a condition that No ITC is availed, Public transport buses that run on biofuel, Services by way of admission to theme parks, water parks, joy rides, merry-go-rounds, go-karting and ballet 28% 18%
Small housekeeping service providers, notified under section 9 (5) of GST Act, who provide housekeeping service through ECO,  without availing ITC nil 5%
Actionable claim in the form of chance to win in betting and gambling including horse racing nil 28%
Rice bran(other than de-oiled rice bran) 0% 5%
Cigarette filter rods 12% 18%

Oct 24, 2018