The Goods and Services Tax (GST) is the single biggest reform in India’s indirect tax structure since the liberalisation of the economy in 1991. Through this reform, the government has integrated the previously disparate segments of the Indian economy and has truly begun the process of creating one market for the entire nation. The idea of a single tax on the supply of goods and services, from manufacturing to delivery to the final consumer, has eliminated the need for sellers to register with multiple tax platforms and file multiple tax returns.
GST is going to have a major impact on e-commerce in the country. Apart from consumers, this trade segment has two key players: the e-commerce marketplaces and the sellers. While e-commerce marketplaces such as Flipkart and Amazon are required to make necessary adjustments to their operations, it is the impact on e-commerce sellers, represented by the thousands of retailers that sell through the marketplace that requires intense scrutiny. Through this blog, we assess the impact of GST on e-commerce sellers and the steps such businesses need to take to ensure regular compliance.
GST-induced taxation changes for e-commerce sellers
Presently, GST appears to be an assortment of compliance guidelines. The enhanced regulatory requirements might take a seller’s focus away from operations for some time. However, GST as a single tax for products across India will be beneficial for all e-commerce sellers in the long run because of the aspect of transparency in trade brought forth by this new indirect tax reform. Let’s discuss the impact of GST on an online seller’s operations:
1. Increased reach of e-commerce sellers: GST has opened avenues for small and medium sized e-commerce sellers to compete with larger enterprises at a national level. Previously, these sellers were limited to operating within the confines of one state due to the looming tax rates of trading across multiple states. By unifying the taxation, e-sellers need not be burdened by multiple taxes while selling to consumers across various states.
2. Compulsory registration required: The government has specified a turnover threshold of Rs 20 lakh for registration under GST. This has been relaxed to Rs 10 lakh for north-eastern states. However, for e-commerce sellers, registration is mandatory, irrespective of whether they fall below the turnover slab of Rs 20 lakh or not. Removal of the threshold for registration will help bring more online businesses into the sphere of taxation.
3. Ineligible for Composition Scheme: E-commerce sellers are not eligible for the Composition Scheme either. The Composition Scheme permits businesses with a turnover of under Rs 75 lakh to file quarterly returns instead of monthly and pay tax at a low rate of 2%. Although this might seem to be a disadvantage for e-commerce sellers, the number of documents required to file for the Composition Scheme is relatively higher, reducing the burden of document collation on the seller.
4. Tax collected at source (TCS): E-commerce marketplaces are required to deduct 2% TCS on the net value of sales as the GST liability of the seller and deposit it with the government. Further, the sales reported by both the e-commerce marketplace as well as the seller need to tally at the end of each month. Discrepancies, if any, will be added to the turnover of the seller and they will be liable to pay GST on the additional amount. This measure will weed out fraudulent sellers and shall subsequently build trust between marketplaces and sellers.
5. Filing of tax returns: The e-commerce sellers need to follow the same process that is followed by brick-and-mortar retailers. Form GSTR-1, containing details of outward supplies, needs to be submitted by the 10th of every month. The seller will receive Form GSTR-2A by the 11th of the same month, which contains details of the tax collected by the e-commerce marketplace. They then need to review and submit Form GSTR-2 by the 15th of the month. Discrepancies in supplies are to be submitted through Form GST ITC-1 by the 21st of the same month. This would require businesses to be particular about tallying data coming from different sources before filing returns. Taking the help of a professional GST services provider in meeting compliance has become a requisite in light of these regulations.
6. Increase in Credit: The GST law has established ‘input tax credit’ to cover goods or services used by a company in the course of business. E-commerce sellers need to establish a direct relationship between the input material and the final product/service is eliminated. Much like other registered entities under GST, e-commerce sellers too can now avail input credit.
7. Refunds under cash on delivery: Consumers extensively opt for ‘cash on delivery’ in India and such sales witness return of orders to the tune of 18%. The reconciliation process for refunds takes around 7-10 days. Initially, there might be confusion around generating refunds for cancelled orders where taxes have already been filed.
The impact of GST on logistics and warehousing
With the Government having done away with multiple layers of tax, GST is bound to reduce costs incurred in e-commerce logistics. This reduction, according to some estimates, could be as high as 20%. Also, with state-level taxes being subsumed under GST, e-commerce platforms can reduce warehousing costs as they need not maintain huge warehouses across multiple locations in India. Such warehouses were earlier operating below their rated capacities, adding to inefficiencies and the selling price of products. Now, e-commerce marketplaces can opt for maintaining a few warehouses at strategic locations. These well-maintained logistics hubs will be able to attract FDI inflows and lead to an increase in overall efficiency in operations. With the free movement of goods and services and a uniform tax rate across states, e-commerce sellers will be free to transport across different locations in India.
The implementation of GST stands to benefit e-commerce sellers, as due to the elimination of entry taxes and faster movement of goods vehicles across states, the last mile delivery costs will come down. This benefit can be passed on to customers. Also, e-commerce marketplaces are now free to source goods from SMEs across India and not just limit themselves to local players across states. They were compelled to do this earlier to save costs on heavy inter-state taxation. Such a move will give impetus to the SME sector in India and foster healthy competition among SMEs, thereby improving the quality of products and services available in India.
There is no doubt that e-commerce will be subject to increased tax compliance and subsequently increased costs. However, in the long run, GST should level the playing field for e-commerce sellers, thereby streamlining their operations and setting the tone for increased business growth
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The hotel industry is one of the fastest growing domains in India, and, together with the travel segment, it was valued at $136.2 billion by the end of 2016. The implementation of Goods and Services Tax (GST) will help the hotel and travel industry largely by bringing down costs for customers, consolidating the multiple taxes into a single tax value and decreasing transaction costs for concerned business owners. However, certain challenges accompany these outcomes as well.
A look at the conditions pre- and post-GST
Similar to other industries in India, there were multiple taxes applicable to hotel industry. These were chiefly in the form of value added tax (VAT), luxury tax and service tax. For a hotel, if a room’s tariff exceeded Rs 1000, the service tax liability was 15%. With an abatement of 40% allowed on the tariff value, the actual rate of service tax was brought down to 9%. The VAT that ranged between 12% and 14.5%, as well as the luxury tax, was applied over and above this.
The GST impact on hotels and travel industry
Under the GST regime, the hospitality domain gets the advantage of standardised and uniform tax rates. The utilisation of input tax credit (ITC) has also become simpler and better. Complimentary food (such as offer of breakfast with room) that was separately taxed under VAT will be taxed as a bundled service under the GST system.
As a positive effect of GST for hotels, the end cost to be paid by the final consumers will decrease, which will help to attract more tourists and push up the growth of businesses in this industry. Conversely, it will also increase the revenue collection of the government.
The tax rates under GST for hotel industry have been set as:
|Room Tariff Per Day||GST Rate|
|Less than Rs 1000||NIL|
|Rs 1000 – 2499||12%|
|Rs 2500 – 7499||18%|
|More than Rs 7500||28%|
Most hotels in India follow a dynamic pricing policy, where they decide upon the tariffs manually as per the number of tourists expected in a certain season. The tariff, therefore, keeps changing according to the demand and supply forces. Since the GST rates vary for different tariff levels, hotels have to ensure that their billing software also changes the tax rate as per the room tariff throughout the distribution channels comprising travel agencies and online aggregators. Making such changes in the billing systems could take some time.
Positive aspects of GST
The Goods and Services Tax has brought some relief for the hospitality industry through:
Ease of administration
With the implementation of GST, the multiple state and central taxes levied on the tariffs of hotels have been done away with. This has helped to trim down the burden of different procedures of tax application and has resulted in better streamlining of the entire process.
Less confusion for customers
Tourists staying in hotels and availing some special services were largely confused by the multiplicity of taxes in their bills. For most of them, it was difficult to understand the difference between VAT, service tax and luxury tax. Under the GST system, they will see only one consolidated tax on their invoice, which will give them a clearer picture of what they are paying in tariffs and what is the tax charged on them.
Enhanced quality of service
Many tourists and hotel guests have had the cumbersome experience of waiting in the hotel lobby while their bill was being prepared. It often took longer to add the different tax components and prepare the final version of the bill to be paid by the customer. With GST, the managers have just one tax to calculate and that makes the checking-out process from hotels quicker and simpler.
Ease of using input tax credit
Entities in the hotel and travel industry can now easily claim and get input tax credit. They are entitled to get full ITC (input tax credit) on the inputs that they add. Due to the division of revenue between the centre and state governments, the multiple taxes paid before GST regime on inputs – like cleaning supplies, uncooked edibles for meals – could not be smoothly adjusted against the output. The calculation of ITC will be easier in the GST system.
Negative aspects of GST
The GST for travel industry and hotels also comes with its share of adverse impacts. With a taxation rate of 28%, the hotels charging tariffs over Rs 7500 are worst hit, as their final prices for customers will increase significantly.
Looking at the bigger picture, GST can hit the inflow of foreign tourists to India. Other Asian countries such as Japan and Singapore impose tax rates as low as 8% and 7% on their hotel and travel industry. This can become a big factor in making them more preferred tourist locations as compared to India.
Capital Float looks at GST for hotels and tourism as a mixture of simpler, smoother rules and seemingly higher costs & compliance. The trade associations of hotels and restaurants have been protesting for a lower tax rate of 5%, but it starts at 18% for a majority of them. The value of tourism industry in India is projected to grow by up to $280.5 billion in the next 10 years. How well the positive aspects of GST outweigh its negative effects is yet to be seen. Meanwhile, despite the challenges, the credit support for the development of new hotels and restaurants by an NBFC like Capital Float will continue to be consistent.
Oct 24, 2018
Loan Products in the Market for SMEs: 5 Steps to find the best Business loan type for your Business Requirements
An enterprise that has a strategic business plan for its growth but not enough cash to execute the same can approach institutional lenders for funds. There are multiple sources of procuring a working capital loan in the organised credit market. These include private and public sector banks, development banks and non-banking finance companies (NBFCs).
The digitally enabled NBFCs known as FinTech lending companies have become some of the major lenders supporting the growth of micro, small and medium enterprises (MSMEs, SMEs) around the world. In India too, the FinTech lending model is becoming popular, and start-ups find it more convenient to borrow from them as these companies offer unsecured business loans.
What kind of businesses can borrow from a FinTech company? How to apply for a FinTech SME or MSME loan? Could this be a month-long process like most other institutional lending systems? These are some of the questions that organisations not acquainted with the digital lending framework ask. And the answers bring relief to most of them.
In their mission to support the Make in India initiative, established FinTech companies are coming forward to assist as many enterprises as possible. They have a diversified array of products that include working capital loan, term loan, supply chain finance, machinery loan and other funds customised for different commercial needs.
You need to take merely 5 steps to find the best business loan type for your business requirement when you decide to approach a FinTech company for finance.
Before we further look into these five steps, here is some more information on the different types of funds provided by these digital lenders:
Working Capital Loan—This form of finance helps sustain the regular operations of any business. It is usually taken for a short term – up to 12 months – to procure additional raw materials, buy inventory, pay for utilities and to give advance payments to suppliers. Your business can use this loan as a cash cushion and manage seasonal sale fluctuations.
Term Loan—FinTech companies also offer loans for longer tenures when businesses need to make bigger investments. When the loan amount taken by an SME is approximately Rs 20 lakhs to 50 lakhs, it can be paid it back in 2- 3 years in small instalments. Term loans can be taken by any manufacturer, trader, distributor or professional service provider.
MCA Loan—A Merchant Cash Advance (MCA) loan is a funding option open to businesses that frequently accept card-based payments from their customers. The FinTech lender looks at the monthly credit or debit card receipts to determine the creditworthiness of a borrower. Eligible businesses in Indian can borrow between Rs 1 lakh and 1 crore as per their average card settlements. The loan can be paid back in 9 to 12 months.
Machinery Loan—As the name conveys this loan is procured to purchase machines and equipment used in the manufacturing processes. Businesses in construction, packaging, fabrication, and assembling of products can use these loans to overcome temporary financial roadblocks. FinTechs have flexible repayment terms for such loans.
Invoice Finance—Another customised business loan for SMEs and MSMEs, invoice financing enables businesses to borrow against their Account Receivables. If your company needs immediate cash to fund operations, but your clients will process your bills at later dates, you may be eligible to get quick invoice finance from a FinTech company.
Pay Later Loan—An SME loan in the form of a pay later finance comes with a pre-defined amount that is exclusive to each business as per its requirements and earning capacity. On this loan borrowers can make multiple draw-downs within the approved limit. They just need to pay back the sums used to reinstate the balance for further usage. It is a rolling credit product to help small businesses pay their suppliers at short notices. The top benefit of this loan is that the interest is charged only on the amount used and not the full limit approved for the borrower.
Supply Chain Finance—A tailored loan to help dealers and suppliers having business relationships with large, blue-chip companies, supply chain finance can be availed to buy inventory, improve cash flow, reduce the cost of goods sold (COGS), improve sales, and ensure the timely availability of goods for consumers. With supply chain finance, the borrowing business can reduce its dependence on the buyer while benefiting from the fluidity in its financial position.
FinTechs also offer bespoke funding for specific professions and businesses. These may be in the form of a school loan, doctor loan, online seller finance, franchise finance, petrol pump loan, restaurant loan or a loan for any other legally permissible business.
5 steps to find the best business loan type for your business requirements
When a FinTech company offers a custom loan product for your line of business/profession, it is important to identify the right kind of finance product. It is thus good to be aware of the general ways to choose the right SME or MSME loan.
- Make a note of your requirements—When your business has a good credit rating, it can be tempting to borrow a sum larger than what you need. You may want to keep a bigger cash reserve for working capital. This, however, is a wrong strategy. Remember that as the loan amount increases your instalments to repay it will also be bigger. It is advisable to use a business loan EMI calculator to know the sum that you can repay and apply for the correct amount of funds that will fulfil your need.
- Check your eligibility—Borrowers are often asked to pledge some financial asset as security, to be eligible for most of the conventional loans. However, FinTechs offer unsecured loans and check the creditworthiness of borrowers on the basis of years in operation, revenue earnings, past loan history if any and compliance of the business with tax laws. You can check your eligibility criteria relating to specific loans by referring to the lender’s website or speaking to their customer service team.
- Compare loan costs on all parameters—Do not be instantly allured to loans that advertise low interest rates. Such an SME loan may also have a loan processing fee of 3% or more, and multiple hidden charges such as a legal fee, documentation fee, insurance premium and other statutory payments. On the other hand FinTech loans that have a slightly high interest rate come with just a processing fee of up to 2% and no hidden fees.
- Collate the required documents—To verify the information filled in a loan application you will need to have your KYC documents, copies of the latest tax returns, bank statements and few other papers as per the nature of the loan sought. The benefit of going for a FinTech loan here is that you only need to upload soft copies of such documents as the loan application is made digitally.
- Apply for the loan—Once you have understood your requirements, eligibility, cost of the loan and have collected the required papers, the last step is to apply for the funds. When you make a digital application, ensure that the lender has a secure website that will encrypt all your personal and business details.
At Capital Float every business loan application is reviewed within minutes of its submission, and if approved, the fund is disbursed in the next 2-3 business days. At the end of these 5 steps to find the best business loan type for your business requirement, you can be rest assured that you have the right amount that you wish to add to your working capital and the right loan type from the collection of credit products at Capital Float that is customised for your needs.
Oct 24, 2018