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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.

Oct 24, 2018

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Here is How Unsecured Loans are Different from Secured Loans

Adequate funding is a pre-requisite for any business. Whether a project is at its initial stage or in the development phase, it needs ample financial backing to keep up its growth momentum. However, finding adequate funding can be a challenging process despite the market now offering a wide range of alternatives to traditional sources of finance.

In their search for funding options, start-ups and small businesses often stand at crossroads where they must choose between secured and unsecured loans. On the surface, both look “equally attractive” with their respective advantages. Borrowers are frequently perplexed as to which should be their final choice.

It is therefore important to delve more deeply into these two broad categories of loans and compare their costs with the benefits they bring. Businesses must also be aware of their own financial situation to understand clearly which loan option they will be eligible for.

Let us first understand the basic concepts of secured and unsecured business loans in India.

Secured Loan

A secured loan is always backed by assets. While applying for such a loan, the business must own something of measurable financial value, which can be offered as collateral to the lending institution. This could be an immovable property (a plot of land with or without construction), gold, a valuable investment portfolio, or any other asset that can be liquidated. Businesses can also extend their machinery, raw material or inventory stock as collateral.

The collateral has to be pledged to the lending institution. This implies that the lender will hold the title/deed to the collateral until the loan is fully paid off. However, the borrower retains the ownership of the asset and will continue to enjoy benefits accruing from it.

If the borrower fails to pay off the loan in the stipulated time, the lending institution has the right to take over the possession of the collateral and sell it to recover the outstanding debt amount. Typically, with secured loans, the end use of funds borrowed is pre-determined.

Advantages of secured loans

Borrowers are often lured to secured loans in the hope that they will be able to procure a larger loan amount than what unsecured loans can offer. The longer period available to pay back the borrowed sum is also a perceived advantage.

Another apparent benefit of these loans is the lower interest rate charged on them. This is based on the rationale of lesser risk involved, thanks to the collateral that can be sold off by the lender in case of payment defaults.

THE CAUTION – What must also be remembered is that some secured loans can have very high interest rates. There are financial agencies that charge the highest legal interest rate for business loans despite taking collateral from the borrower. Reading the fine print carefully is always recommended. In some cases, a low interest rate can also be a promotional or limited period offer that may be withdrawn after a few months.

In addition to non-banking financial companies (NBFCs), nationalised and private banks also offer secured loans to businesses, but the banking penetration in India is still low. This prevents several small and medium enterprises (SMEs) from obtaining a secured loan at a reasonable interest rate.

Another common disadvantage of secured loans is that the process of getting approval is longer and calls for more paperwork than an unsecured loan.

This brings us to the second business loan category.

Unsecured Loans

An unsecured loan is not backed by any collateral. It allows the borrower to get funds without having to offer any asset as guarantee to the lending institution. Generally, unsecured business loans come with a fixed term and fixed rate of interest.

Unsecured loans are offered based on the credit worthiness of the borrower. For an enterprise, the eligibility can be gauged in terms of years in business, its annual turnover and the primary location (city) from which it operates.

The tenure of these loans is often shorter than the long-term loans granted by banks. Most nationalised and private banks approve loans for SMEs with a payback tenure of not less than one year. NBFCs can offer immediate loans for shorter periods. At Capital Float, unsecured small business loans are offered for a tenure of one to 12 months. This gives the borrower the advantage of securing quick funds for sudden needs. Once the project begins to reap returns, the business can pay off the loan and thus avoid paying interest for prolonged terms.

Advantages of unsecured loans

When a business requires only a small amount, an unsecured loan is a better alternative than a secured one, especially if the business does not want to expose its financial assets to the risk of repossession. Also, those companies that do not possess sufficiently valued assets for the amount they require can find easy access to working capital finance with unsecured business loans.

Such loans also act as a good source of funds for companies that are already trading. Since the loan is unsecured, the lenders decide upon its amount by simply assessing the trading position of the business. Background checks are performed on credit history, cash flow position, cash reserves and balance sheet.

Unsecured business loans are quicker to obtain than secured loans. We provide funds to our clients within 3 days once they submit the necessary documents and clear the eligibility criteria. As against this, private banks take more than two weeks in forwarding the grant, while public sector unit banks can take 4-6 weeks for the same.

If your business needs immediate financial support and you are hesitant to offer any collateral to the lender, unsecured business credit will work for your best interests. By choosing Capital Float as your trusted finance partner, you are assured of a quick digital process to submit your application. The entire loan disbursal process is completed in three simple steps, given below:

  • Upload the minimum required documents on our website
  • Receive approval in minutes if your paperwork makes the business eligible for loan
  • Get the funds within next 72 hours

Do not let the long-drawn processes of conventional funding delay the pace of your venture’s development. In the digital age, unsecured corporate loans can conveniently help you accelerate your business growth.

Oct 24, 2018

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All You Need To Know About Unsecured Business Loan for Traders

It takes money to make money.” We often hear this adage in the business world, and it does hold true. Even so, maintaining adequate cash reserves to meet the fixed and variable costs can be a real challenge, especially for start-ups and small businesses.

Most of the small and medium enterprises (SMEs) initiate operations with a low level of funds while simultaneously facing competition from established players and dealing with the challenges of seasonal cycles. Consequently, they may not be able to generate the estimated sales volumes.

Even if a venture is performing as per expectations, it may need to make additional investments to hire qualified experts, adopt new technologies and maintain larger stocks of materials/inventory for sustained progress. With experience, SMEs know that a cash cushion is necessary for both survival and growth. An Unsecured Business loan for Traders best offers this advantage.

The Challenge

There are multiple sources of an SME loan for small enterprises, and sincere business borrowers approach a financial institution only when they are confident about and can prove their venture’s ability to pay back in time. Nevertheless, a high number of applications get rejected because these borrowers are unable to pledge financial assets as collateral against a loan.

Not everyone owns huge property. New entrepreneurs often start their operations from rented premises and may not have any significant assets to hypothecate. A secured business loan for traders can also be denied if the lending institution does not deem a particular asset to be valuable enough for the funding.

Solution for Cash Crunch in Business

The Solution

What comes as a relief for business owners is the fact that an unsecured SME/MSME loan is a prominent option for finance, and it comes at significantly more customized terms.

As the digital revolution continues to transform the lending industry, the possibilities of quick funding have only increased for small businesses, and there is an array of SME loan products available to them. A digitally operating FinTech company offers term loans that can be used to buy new premises (shop/showroom/office) or expand the business to new locations. Entrepreneurs can also apply for a working capital loan to continually fuel operations in the low phases of the business cycle.

Moreover, FinTechs offer loan to buy stocks. This facility is particularly helpful for customer-facing ventures such as retail and restaurants.

What is common to all these FinTech credit products is that they are unsecured loans – they can be taken on short notice and without pledging any asset as collateral.

How to apply for a business loan for traders ?

A majority of new-age business managers now understand the lending models of FinTech companies. Those who are still unaware of the concept can always do a quick online search to comprehend it. In brief, a FinTech lending company typically is a non-banking financial company (NBFC) that uses digital technology to make financial solutions quicker to access.

A business loan for traders is highly sought by small enterprises. Any Pvt Ltd (private limited company), LLP (limited liability partnership firm) or Sole Prop (sole proprietary company) can approach FinTech lenders for unsecured business loans.

While the exact eligibility criterion differs as per the kind of SME loan applied for, the principal requirement is the operational business history of at least one year. Pursuant to the rules of the money market, this stipulation is necessary to show that the business owners are genuine and have been running the company for some time.

To qualify for the requested amount, a business with active operations should also show its commitment towards tax compliance. It should also have a precise idea of its loan requirements. This not only helps the borrowing organisation to increase its chances of getting an approval for the credit, but it also makes it convenient to choose the right type and term of the loan.

Anyone applying for a business loan for traders should understand the cost of the loan upfront. When a FinTech is approached for such an investment, this cost includes the interest rate and a nominal processing fee that is usually less than 2% of the borrowed amount.

The application process is entirely digital, and that makes it shorter than the overwhelming procedures of visiting a traditional lender, printing multiple copies of documents and then staying in suspense for weeks to get the required amount.

Applying for a loan from a digital platform takes less than 10 minutes, and the application formats are available on the secure website of the FinTech lender. The application form usually comprises of some basic questions to evaluate the eligibility of the business for a loan. These questions include years in operation, average annual/monthly revenue, tax payments and past credit history, if any. Digital uploads of the relevant documents support the information.

There is no waiting game when a business applies for a loan from a FinTech lending company. As soon as the application is submitted, its evaluation by customised algorithms begins, and it may then be sent for a quick manual review.

FinTechs notify the borrowers of the decision on the application on the same day. If the decision results in an approval, they disburse the total approved amount in the next 2-3 working days. The amount is credited directly to the business bank account, and the SME can withdraw the necessary sums to fund the operations/stock purchases as required.

How to pay back the borrowed amount ?

Most loans are paid through equated monthly instalments (EMIs), and the same method can be used to repay a FinTech SME loan. To make this process more convenient for their borrowers, some companies give them the flexibility to vary the instalment amount when required. As soon as the business records reflect better revenues than the estimations, it can pay off the loan in full and save the trouble of managing EMIs for the complete schedule. The prepayment penalty charged by a FinTech is still less than that of banks and traditional NBFCs.

Is your business facing a cash crunch? Do you want to move to the next level of growth or invest funds to start operations at a new location? Capital Float is a friendly FinTech lender that is trusted by businesses in multiple industries. From term loans and working capital loans to funds for specific domains such as medical practice and online selling, we provide an array of credit products tailored to the needs of business owners and self-employed professionals.

Growth of revenue for traders

 

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To know all about the loan that you seek and the amount that you can borrow, feel free to call us at 1860 419 0999.

Oct 24, 2018