Implications of GST on SMEs

One of the biggest tax revolutions of India is underway as businesses and tax payers are gearing up for the change. These enterprises and individuals are assessing how the GST rollout will make a difference to them. One such segment is the Small and Medium Enterprises (SME) segment, which contributes significantly to India’s GDP and exports. The positive effects from GST are expected to drive decentralization of opportunities and provide an impetus to India’s GDP. However there is some concern that some of its policy implications could slow down business, and that is what small and medium enterprises must prepare for. Gaining know-how on GST rules and implications is the first step towards becoming GST-compliant and becoming tax-savvy. This blog will help you understand which SMEs are eligible for GST and the impact on the sector as a whole.

How GST will impact business transactions

GST will typically impact any business at two ends of the spectrum where transactions are involved i.e. for input transactions and for output transactions.

  • Input transactions: An input transaction is a transaction carried out for the supply of input goods / services like raw material procurement, imports etc. Input transactions will be directly affected due to the changes in taxation levels of raw materials/industrial inputs, affecting the product or service pricing.
  • Output transactions: An output transaction is one that is done for outbound supplies or service delivery. For example, sales is an output transaction. GST will directly impact the sales by altering the taxation of the product or service being sold. Depending on the new tax slab of the goods or service, the profitability of the enterprise will be directly impacted.
    Another significant impact area is due to the concept of “place of supply” and “time of supply”, calling for more stringent supplier compliances.

Which SMEs are eligible for GST? 

SMEs are a major driver in the Indian economy, contributing to almost 7% of the manufacturing GDP and 31% of the services GDP. With a consistent growth rate of about 10%, they employ about 120 million people and contribute to around 46% of the overall exports from India.

Under the GST regime, this significant sector too is set to change. First and foremost, all businesses, including SMEs will need to register for GST under the rules as per the following threshold limits related to aggregate turnover:

Region Liability to Register Liability for Payment of Tax
North East India Rs. 9 lakh Rs. 10 lakh
Rest of India Rs. 19 lakh Rs. 20 lakh

Why should SMEs enrol for GST? 

An SME registered under GST will be recognized as a legal provider of goods and/or services. Tax accounting will be streamlined. Such an SME will be able to maintain proper accounting of taxes paid on input goods or services, and be able to utilise the inputs credit facility to enable better cash flows. GST will provide an opportunity for SMEs to digitize their transaction management, making it efficient for the future. If such an SME scales up, it will be prepared in advance to manage large-scale transactions through software. GST enrolment thus provides a window of opportunity to modernise the business and set up standards for doing business easily in the future.

Moreover, digital transactions tend to leave a digital footprint. These footprints can be used to assess the sector with greater accuracy, as Fintech lenders can create customized financial solutions for these SMEs, which are currently under-served from a credit perspective.

Impact of GST on SMEs

Overall, the SME sector seems to be skittish about the impact of GST. Here is a look at some of the pros that GST brings to SMEs.

  • Ease of starting a business: The old tax regime requires new entrepreneurs to obtain VAT registration for every state separately, with each state having its own rules. Though GST too requires businesses to register in each state, the rules for GST are more uniform and outlined clearly on the portal. This will make it easier to set up an SME.
  • Ability to compete with multinationals and multi-state enterprises: GST is a destination-based taxation system and not source-based. Locally manufactured goods by SMEs will pay the same amount of tax as imported goods from multinationals. Moreover, corporates generally ‘stock transfer’ transfer goods to escape the taxes on inter-state transfers. SMEs are not able to ‘stock transfer’ goods due to lack of infrastructure; they physically transfer goods and pay inter-state taxes, leading to higher expenses. Under GST, the stock transfers would be taxed. This will help put SMEs at par with large multinational corporations, allowing them to compete on an equal tax footage.
  • Transparent transactions: SMEs often do not have the resources (processes and people) to dedicate to tax transaction management. GST will enable an online and transparent view of tax obligations and on-goings, minimizing the need to liaison with tax authorities offline. Though it will take some initial investment now, SMEs that streamline their transactions now will be setting up future-ready systems and processes.
  • Reduced tax burdens due to rise in threshold: Under the old regime, business owners with an annual turnover of Rs 5 lakh (Rs 10 lakh in the North East), mandatorily need to register for VAT and make VAT payments. Under GST businesses above Rs 20 lakh turnover (Rs 10 lakh for North East) qualify for GST registration, which brings huge relief to SMEs. Thus, businesses that fall in the Rs 5 lakh – Rs 10 lakh revenue bucket need not register and will experience better cash flows because they are exempt from GST.
  • Better Cash flow due to input credit facility: Cash flows may increase because of facility of input tax credit, wherein businesses will be able to avail credit on input expenses such as supplies. For example, for a business that procures steel as the raw material to manufacture utensils, the businessman will need to pay tax on the raw materials procured i.e. iron ore. He can adjust the tax paid on inputs from the taxes collected on outputs. This means that only the actual “value addition will be taxed.
  • Better logistics: GST will help eliminate time-consuming border tax protocols, allowing for free flow of goods across borders. This will result in savings in logistical costs. CRISIL estimates that the logistical cost for companies manufacturing bulk goods will be reduced by around 20%.

Key Concerns around GST

  • Investment to go tech-savvy: SMEs are typically not used to managing complex tax compliances, but GST will need SMEs to go digital. SMEs may need to hire or consult with GST experts to bring about a technology makeover resulting in additional expenses.
  • Reduced tax exemptions: SMEs are eligible to avail a central excise threshold exemption of Rs 1.5 crore gross turnover; under the GST regime this exemption will reduce to Rs 20 lakh. As a result, SMEs with turnovers between Rs 20 lakh and Rs 1.5 crore will not be eligible for this tax exemption. This is an additional cost that will pinch SMEs that were previously used to being tax exempt.
  • Higher tax rates may impact profitability: Despite assurances by the Finance Minister that overall tax slabs will not increase, the GST slabs indicate otherwise. The services tax rate has distinctly increased from 15% to 18%. Higher tax outflows means lesser profitability.
  • Strict tax-compliance norms means more costs: GST will bring in an era of stringent compliance. For example, purchase invoices raised will have to be reconciled with the supplier of the goods. These invoices have to be uploaded by the entity by the 10th of every month and will need to be reconciled by the 15th of every month. SMEs are not used to carrying out such detailed and timely tax transactions and will need to hire personnel to help with tax management and compliance.
  • Supplier-side compliance will affect the GST compliance rating: The ability of an SME to claim refunds is a direct result of its GST compliance rating. Going ahead, SMEs will be accountable for their suppliers’ non-compliance and they may take a hit on their Compliance Rating due to non-compliance at any leg of the operating cycle, right from procurement to service. Maintaining compliance records, periodic audits will need to be instated to ensure compliance of all stakeholders. This responsibility of supplier-side compliance is an added cost to the company.
  • Time lag in input credit process: Input credit will only be available after a supplier declares the particulars of the supply and after these details are validated by the buyer electronically. Thus, a supplier is heavily dependent on the buyer’s response, leading to a probable time lag in availing input credit. Moreover, the timeline for claiming input tax credit is very limited— before the due date of filing returns for September of the next financial year, or, the due date of filing annual returns, whichever is later.

GST is all set to usher in an era of simplified taxation. SMEs must decide on the right investments to optimise the benefits of the change. This means investing time and resources in understanding the change, getting the right people and processes to change the way they do business to ensure GST-adherence. Such SMEs will emerge future-ready and poised to scale their business like never before.Get more information about GST on our GST blog.

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With a dream to revolutionize business lending in India, Capital Float provides loans to small businesses – YourStory

Written by Pardeep Goyal

The Indian business environment is exciting especially now, where every bright idea is turning into a business, big or small. There are over 30 million SMEs in India. Small businesses are run by passionate entrepreneurs, but unlike digital startups, venture capital money is not accessible to them. Despite efforts, some of these businesses are losing out on growth or shut shop due to lack of working capital.

With a dream to revolutionise business lending in India, Gaurav Hinduja and Shashank Rishyasringa are changing the business of money lending with Capital Float.

Initially, Shashank was an engagement manager at McKinsey & Company, where he advised several leading financial institutions, investment funds, governments and foundations on business strategy, governance, operations and risk management. Co-founder Gaurav was running operations at India’s big apparel manufacturer Gokaldas Exports with over 40,000 people and USD 250 million in revenues.

The duo were at Stanford together before they co-founded Capital Float. They considered various business ideas but doing something related to capital was a natural inclination for them. So they decided to take on the money lending problem for small businesses.

How Capital Float works?

According to Gaurav, Capital Float works in three basic steps:

  1. Customer has to apply online,
  2. Submit documents,
  3. He/she gets a loan if eligible in about three days.

Yes, just three days for loan!

He adds, “We make sure to go through as many data points as available, including external data sources to determine credit worthiness. Once we have established that, we have been able to disburse a loan in under three days and in a lot of cases where the loan is small, it happens instantaneously. In the future, we hope to reduce that time for disbursal even further.”

Team Capital Float understands the importance of friendly capital, and is quick to deliver that much-needed finance to promising businesses that approach them. It is rare in India that a small business can get a loan in such a short time from any traditional finance company. Gaurav says, “Besides the swiftness and hassle-free nature of our service, one of the key USP is that we do not charge a prepayment penalty and our products have dynamic tenures that suit our customer’s needs.”

Key Challenges and Motivation

Starting up always comes with its set of challenges. At Capital Float, they went through the motions like everyone else: from the initial days of hiring the right team to defining clear goals, to ensuring compliance.

For startups, challenges are part of the larger scheme of things to survive and grow. Capital Float is an RBI-certified NBFC but registration was not an easy task. “At one point, we almost quit and took a break for a couple of months. But we understood regulation is very important in a complex market like India and we got back on track and persisted with our goals”, says Gaurav.

Gaurav shares how the company started conversations with their customers in the early days: “Most traditional loan providers find reasons to say ‘no’ to an entrepreneur looking for capital, but we look for a reason to say yes.”

The company has come a long way now; it is serving in major cities like Delhi, Mumbai, Bengaluru and Chennai and has testimonials from CFO of Zovi and other big brands.

According to Gaurav, today’s SMEs will drive tomorrow’s billion dreams. “But we need to ask ourselves who the driving and supporting force behind such SMEs are today,” he adds. The dream to revolutionise business lending in the country has kept Gaurav and Shashank going. “The fact that we get close to a hundred applications a day vindicates our belief in what we set out to do: create a capital revolution in India,” says Gaurav.

Being an entrepreneur himself in the fin-tech domain, Gaurav believes that entrepreneurs form the backbone of the Indian economy as the creators of the largest number of jobs and biggest contributors to the GDP. A significant hurdle for most of them is timely access to appropriate finance.

He shares some advice for entrepreneurs working in the financial domain and other budding startups:

  • Compliance is key; never ignore it
  • You should choose investors who share your vision
  • Don’t give up easily; starting up can initially wear you out but it should not bring you down
  • Don’t always hire for skills. Sometimes it’s important to hire for values
  • Don’t make promises to the customer that you cannot deliver on
  • Don’t launch your product in too many markets at once. Have a soft launch first, test it, tweak it and then re-launch the revised product

Gaurav adds, “There are many banks and NBFCs which provide loans to businesses, but you need to become a partner to your customer, not a lender. Use technology and big data to improve your customer’s experience. Understand how different customers use your products in different markets so that you can customise your product to meet their needs.”

Piece sourced from YourStory. You can read the full piece here.

Oct 24, 2018

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Getting design and development team on the same page!

What makes or breaks a product team?

Strong design principles are one. A clear, effective roadmap is another. But one of the most important, yet overlooked, aspects of all great product teams, are the relationships between the designers and engineers on your team.

“Truly great products are often a combination of two things: a technical breakthrough and a never-before-seen design it enabled.”

Yet many designers compartmentalise building a product into two distinct parts — design and development. This distinction is one of the most dangerous traps a product team can fall into. When the design is seen as a satellite that orbits engineering, it usually comes crashing back to earth.

The problem is we separate design from implementation. In product design, both these things are inextricably linked. A world with terms such as “design freeze” or “handoff” just won’t cut it.

Truly great products are often a combination of two things: a technical breakthrough and a never-before-seen design it enabled. So it’s essential designers understand the possibilities and restraints of the technology they’re working with before they can properly delve into the design.

Design together

Here’s an example. Let’s say you’re designing a native mobile app. Here are some technical questions you might receive from an engineer that can heavily influence your design decisions:

  • Which framework are we going to use for that home screen chart? If we don’t know the suitable one, we should ask the developer for a suggestion and follow the UI of that framework.
  • How long does it take the API to fetch the data for that list-view? If it’s too long, you’re going to need to do more than place a spinner.
  • The API takes a little too long to load user’s loans. What do we display in the meantime?

Questions such as the above should be asked and addressed as early as possible by discussing with engineers. Involve them in the design process, at the end of the day, it’s the developer that actually builds the website or app.

Even though you’re the designer, the developer knows best when it comes to certain other aspects of the user experience (perceived performance, page loading times, miscellaneous features that will crash the browser).

Turning design into reality

Being a great designer requires you to be empathetic, not only to users or clients but also to your engineers. Let’s not forget that all of us are working for the same goal of building a kickass product!

So here are key pointers to turn your design into pixel perfect reality:

1. (Atomic) Design System:

Design System is a list of all the elements you are using in a project. It helps you maintain consistency in the design. Want to know how we built our design system? Take look at this article:

getting-design-and-development-team-on-the-same-page


2. Mockups:

We all have been generating & sharing UI mocks comfortably for many years now. But there are few things which will help us avoid confusion.

Artboard sizes:

Nowadays we have a wide range of devices. Not just web but our mobile platforms also has varying screen sizes! It’s important to decide how will our product look on all those screens? Define the breakpoints and keep in mind the media queries that developers are going to use. Talk with your developer if you don’t know what it is.

Breakpoints and responsive layouts:

Upload an artwork to Zeplin or Google Gallery or InVision with the responsive design (according to the breakpoints that you’ve already set), in other words, share how your design looks in different screen resolutions and devices.

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You think it‘s clear that the design will be horizontally centred at higher resolutions, such as 1920 x 1080 pixels, but developers are not mind-readers.

Tools for designers:

We have developed a Sketch plugin which allows you to quickly generate guides for a selected element and helps you achieve web development’s famous grid (column) behaviour in Sketch. The plugin was featured on SketchApp website and newsletter.

Tools for designers

File names and versioning:

The name of the screen should simply describe its function. If you’re not yet using a version control solution for your designs, you probably should.

Make sure to use consistent casing when naming your screens, whether it’s ‘camelCasing’ or ‘Sentence casing’ or ‘lower casing’ etc.

File names and versioning

We also add 3 number to give the sequence to mockups.

3. Interactions:

Make a flow:  Putting the mockups together is only half the work done. You’d need to stitch the screens together based on the flow using Hotspots (or just make an Interactive Prototype). It helps the product manager understand how the user journey is panning out and helps the developer plan her/his approach to code.

Figure out the fidelity: Not every screen has to be fleshed out with high fidelity prototypes. Few screens could simply be static with explanatory comments, few could get away with platform-specific standard interaction patterns and few might require those custom prototypes. There’s no blanket rule for all the screens, so discuss with your developer & plan accordingly.

Suggested Tools: Overflow, Marvel, InVision, Google Gallery, Principle or craft it directly in code!

4. Specs and assets:

Today with products like Zeplin, Google Gallery, Marvel Handoff or InVision’s Inspect sharing style guides and specifications has never been easy.

Assets and resources:

Exporting assets for the different platform is easy but your developer is gonna love you if you are giving them optimised assets! Use optimisation tools like Kraken, ImageOptim, Optimage or TinyPNG.

Even better if you use SVG.

When you use SVG for your icons or illustrations, you don’t need to worry about devices with different pixel densities. Another advantage is that SVG graphics use up less space, and can be compressed effectively by gzip on the server side.

Think twice before you send an asset larger than 1MB to a developer! Don’t be lazy and send the job off to a developer; you are responsible for the visual quality of the project. Check out this image optimisation guide by Google.

Assets also include custom fonts and copy for your vernacular Apps.

Final Checklist:

1. Don’t be too visionary.The ideas must work.

2. Work with real data in mind and think about a “scalable design”. If there is a long text, what happens? how does it work in other languages? and if in the future will be adding more items to the menu, what happens?

3. Empty states: if you don’t know what they are, find out!

4. Explain the reason for your choices about the layout, colors and interactions.

5. If you speak the language of developers, you can get respect. If you have a good knowledge of programming languages (HTML, CSS, Java, PHP, JavaScript, C #, Objective-C or Swift) you can be one of them and they listen to you with pleasure.

6. Never forget the user.

Conclusion

Although you shouldn’t need another reason to be considerate of your fellow teammates (especially developers, who traditionally, designers find it hard to see eye-to-eye with), using these tips will help you, as a designer, just as much as they help everybody else. Cutting corners to save time only creates speed bumps further down the road, so add a little care and some foresight with your design choices.

Tap the ? button if you care about your developer (and/or you found this article useful).

Have any tips of your own? Let us know ?

Source:- Capital Float’s Medium Blog

Oct 24, 2018

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What Is GST And How To Register For It

India is all set to implement the Goods and Services Tax, or the GST, from July 1, 2017. The intent is to standardise the indirect taxation system in the country, related to the supplies and consumption of goods and services. The new regime is one of the biggest indirect tax reforms pan-India, and one that will directly affect both business owners and consumers to a marked degree. It is thus important to know the whats and hows of the GST rollout.

What is GST?

GST is a new system for indirect taxation. Under this, a new four-tier tax structure has been finalised. Goods and services will be taxed under the slabs of 5%, 12%, 18% or 28%. The highest slab is for luxury items and items such as tobacco. The Union Cabinet has passed four bills for four different categories of tax regimes under the GST, as follows:

Central GST Bill: Applies to the supply of goods and services by the Central government within the boundaries of a state.

Integrated GST Bill: Applies to the supply of goods and services between different states, carried out by the Central Government.

Union Territory GST Bill: Applies to the supply of goods and services in the Union Territories.

The Compensation Bill: An allied bill that will govern the provision of compensation for revenue losses brought on by GST implementation, over a period of five years from implementation.

These four bills together are set to change the tax norms in the country.

Advantages of GST

The GST will prove advantageous at both seller and consumer levels. According to our Finance Minister Arun Jaitley, GST has the potential to boost economic growth by as much as two percentage points. From a business perspective, a number of pros are evident.

Greater compliance: The GST implementation will be reinforced by a backbone of robust IT systems and processes. All taxpayer services will be available online, making tax compliance and operations simple and transparent.

Uniform tax rates: This will ensure that tax structures and rates are common across the country, and will consequently make cross-locational business easier and quicker.

Reduce overlap: Often, a single product, for example, a shirt, being sold is taxed at various stages. With VAT, excise duty and other taxes payable at different stages, payments often roll up to large numbers, posing a cost to the company. The GST will facilitate the removal of different layers of tax levies and will replace them with a single, clear interface.

Cost advantage: Under the GST practice, many local Central and State taxes will be subsumed. At the Central level, the Central Excise Duty, Additional Excise Duty, Service Tax, Countervailing Duty and Special Additional Customs Duty will be subsumed. At the State level, we will see the following getting subsumed: State Value Added Tax or Sales Tax, Entertainment Tax, Octroi, Purchase Tax, and Luxury Tax, to name a few. These measures will reduce the cost of manufactured goods or services, thereby increasing the competitiveness of Indian goods in an increasingly global market.

The end consumer also stands to benefit from the following:

Better tax clarity and planning: Often, consumers are not aware of the taxes that they pay on the purchased goods or services, either due to the confusion caused by multiple indirect taxes or because the tax component is not revealed in the selling price. Such taxes may mask the real cost. GST will help streamline this by having only one tax applied from manufacturer to consumer, enabling tax transparency.

Lesser tax burdens: A single rollout across the nation is bound to bring in efficiency gains. At the same time, a transparent tax process with fewer hidden taxes will help reduce taxes for most commodities, leading to better affordability for the consumer.

The next steps for businesses: Applying for GST

Every business that is currently registered under any existing tax regime has to compulsorily migrate to GST. If your business is not registered under any tax regime, then you have to register for GST only if your aggregate turnover in a financial year exceeds a threshold limit of 20 lakhs liability for payment of tax (10 lakhs for North Eastern states).

If your business is happening inter-state or through e-commerce as an intermediary supplier, then registration is mandatory, even if this threshold limit is not reached. However, note that any casual taxable person or non-resident person is liable to register for GST even if they are not crossing the threshold limit.

Registration/ enrollment for GST is to be completed online under the GST Common Portal https://www.gst.gov.in/ for both taxpayers and businesses. This will be the platform for future filing of returns and tax payments. The government has also appointed GST Suvidha Providers to help with the process. There is no offline process for GST enrolment.

The enrolment is free. In order to log in for the first time into the portal, you must have your username and password that you would have received from the State VAT or Centre Tax Department (these are linked to your PAN). For further logins, create your username and password and begin the enrollment process.

These are the steps to follow for registration:

  1. Fill in Form GST REG-01-Part A, and key in the PAN number, mobile number and email address. The PAN will be verified online while the mobile number and email ID will be verified through the one-time password (OTP).
  2. The applicant will then receive an application reference number along with an acknowledgement of application through FORM GST REG-02.
  3. The applicant must fill the Form GST REG-01-Part B with the applicant’s reference number. The applicant must attach required documents: PAN card, documentation of company such as partnership deed, memorandum of association or incorporation certificate, proof of business such as rent agreement or electricity bill, cancelled cheque of company bank account in the account holder’s name, and proof of key authorised signatories such as list of directors or list of partners with their ID and address proof.
  4. If any additional information is required, the applicant will receive Form GST REG-03 as notification and must fill in and submit Form GST REG-04 within seven days.
  5. On submitting all details correctly, the application will be approved and the applicant will receive their registration certificate, called Form GST REG-06. However, if the application is rejected, Form GST REG-05 is sent to the applicant and they will be required to resubmit an application through Form GST REG-07, only if they need to deduct TDS or collect TCS.

This completes the registration process. It is followed by the issuance of a Provisional Registration Certificate (if approved), and thereafter, a final Registration Certificate that is expected to be issued within six months of the documents being verified by the GST authorities. Remember that different business verticals/locations need to be registered separately, as the registration certificate is generated separately for each.

Currently, the portal states that more than 60 lakh taxpayers have enrolled on the GST Portal between November 08, 2016 and April 30, 2017. Please note that the enrolment process has closed from May 1, 2017, and will reopen at a later date. Visit our GST blog to know more about GST and keep track of latest

Oct 24, 2018