MSME is an important sector for the Government, as it maintains a relentless focus on increasing GDP and employment. Formalization of MSME businesses is being undertaken on a massive scale after demonetization and the introduction of GST. The core focus of the Union Budget 2018 indicates the Government’s commitment to continue strengthening MSMEs from the base of the sector.
Lending a Hand to MSMEs
With the Union Budget 2018-19 in play, the refinancing policy and eligibility criteria under Micro Units Development and Refinance Agency (MUDRA) program will be reviewed to encourage easier financing of MSMEs by NBFCs. The Government has set a target of ₹3,00,000 crores for loans to be provided under MUDRA in 2018-19. Specific measures to address NPAs of MSMEs were promised to ease the cash flow challenges that they face. The tax burden on MSMEs has been reduced by axing tax rate to 25% for those with revenues of below ₹250 crores. Recapitalization of PSU banks will add an additional ₹5,00,000 crores to the available lending pool this year. A unique Aadhaar-like identity for each enterprise is planned for streamlining business identity. This measure can enable Fintech lenders to process eKYC of enterprises swiftly and offer working capital finance in a matter of minutes. Furthermore, the Finance Minister Arun Jaitley called out Fintech lenders in his speech and emphasised their importance in financing the development of MSMEs in India.
A five-year tax holiday was granted to Farmer Producer Organisations (FPO) with a turnover below ₹100 crores to encourage post-harvest value addition. The Government has also promised a Minimum Support Price (MSP) crop of 1.5 times the production cost to farmers. In addition, several proposed measures related to the farm sector include – funds to develop agricultural markets, improve agricultural logistics, enhance rural connectivity, and distribute Kisan credit cards to farmers in fisheries and animal husbandry sectors. This sets the precedent for these sectors to create a digital footprint, facilitating them to receiving customized finance in the future from digital lenders like Capital Float.
The Finance Minister proposed to extend the tax relaxation period to 150 days to footwear and leather industry to boost the creation of employment at the grassroots level. An additional ₹10,000 crores have been allocated for fisheries, animal husbandry and aquaculture industries. This is expected to aid more micro-segments in being included in the formal financial ecosystem
New Financing Avenues
In a bid to help start-ups and venture capital firms to attract foreign investments in niche areas, the Government will evolve a coherent and integrated policy for ODI (Outward Direct Investment) and hybrid instruments. The basket of eligible FDI instruments will be expanded to include these under certain conditions.
Taking a Position on Crypto Assets
The Government has reiterated that it is illegal to transact using cryptocurrencies, though it does not categorically state that it is illegal to hold these assets. The Government will intensify its efforts to eliminate illicit transactions in cryptocurrencies. It also proposes to explore the use of Blockchain technology to enable more transparent payment mechanisms to boost the digital economy further. These efforts certainly forward the shift of business transactions from being paper-based to paperless, while adding clarity on which methods of digital payment are acceptable and which aren’t.
MSME – Key to India’s Industrial Growth
MSME sector plays a key role in India’s journey towards becoming the 5th largest economy in the world. Several measures to ease cash flow have been proposed which are likely to make lending more readily available to MSMEs. With Fintech lenders leading the charge on the financing front, MSMEs can be expectant to receive timely credit support to actualize their business ambitions and achieve remarkable growth this year. Several micro-segments are also expected to be absorbed into the formal financial system, as Fintech lenders like Capital Float continue to champion for the cause of financial inclusion in India.
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“A global economy is characterised not only by the free movement of goods and services but, more importantly, by the free movement of ideas and of capital.” ~ George Soros
As a fully digitized lending platform, Capital Float provides flexible credit products to small and medium enterprises that are working towards achieving business growth. The Great Indian Finance Festival (GIFF) has been initiated to add further impetus to this objective. Organised in the Q2 of every financial year, this exclusive SME loan carnival brings opportunities for SMEs to get Capital Float’s business loans at reduced interest rates. This helps SMEs in procuring adequate capital to prepare for the festive season in India when the retail industry has maximum revenue-generating opportunities.
GIFF is driven by the vision that in a huge and culturally-diverse country like India, it is significant to fuel growth and entrepreneurship by providing access to finance to high potential, but traditionally under-served SMEs.
Building on Government initiatives
The launch of government-backed schemes such as Pradhan Mantri Jan-Dhan Yojana led to a considerable increase in the number of bank accounts, but reportedly only about 15% of adult customers used these accounts to receive or make payments. Furthermore, as per a study by the Ministry of Micro, Small & Medium Enterprises, only 6% of small businesses obtain finance from organised lenders, hinting at the challenges for SMEs in getting loans¹. To sustain an economic growth rate of 7% to 8% per annum, there has to be a focus on widening the scope of financial institutions.
“A survey involving 540 SMEs by the Firstbiz and Greyhound Knowledge Group in 2016 revealed that over 90% of the SMEs in India found ‘lack of easy finance and credit instruments’ to be their most critical challenge.“
With a deep understanding of the market, Capital Float has consistently worked to provide easier access to loans to SMEs when compared to traditional banking channels. We bring you customized working capital solutions, borrower experience enhanced by technology and convenient processes to power your journey. Our objective is to enable SMEs in India to #BreakLimits and realize their true business potential.
The Indian SME is becoming a digital entity
A big change in the credit market comes from the digital lifestyle of Indian consumers. Currently, India is the second largest smartphone market with a user base of over 230 million. Moreover, an increasing number of SMEs are operating online by partnering with ecosystem juggernauts like Amazon, Flipkart, Alibaba, etc. Post demonetization in November 2016, a significant number of enterprises installed POS terminals at their stores, through which consumers could engage in cashless transactions. The Government has digitized data through initiatives like AADHAAR and GSTN, which can be used by Fintech lenders like Capital Float to assess and underwrite borrowers with higher levels of accuracy.
Capital Float has emerged a market leader in this environment by establishing itself as an online lending platform that offers customized working capital solutions. We have tailored a wide SME loan portfolio to ensure that we have a loan for every kind of SME and micro-entrepreneur in the country. For instance, we provide Online Seller Finance for e-commerce sellers operation on leading online marketplaces, and also service retailers using POS machines from the likes of Pine Labs, Mswipe, ICICI Merchant Cash Services, etc.
By using Capital Float services during GIFF, business credit seekers can get loans from ₹1 lakh to ₹100 lakhs starting from 16%. This is coupled with our BAU processes to enhance borrower experience in the form of live chats, knowledge centres and means to track loan application status online.
GIFF welcomes businesses from across the country to empower their journey for the festive season in 2017. Capital Float is ready to take quick and accurate lending decisions for them. We have comprehensive credit packages unfettered by restrictive lending policies, inflexible collateral requirements and slow disbursals times. SMEs can apply for loans online in ten minutes, upload the documentation required and receive funds in their account within three days.
In a phase where banks have tightened their purse strings to deal with bad loans, NBFCs are coming up with new strategies to spark up the investment drive. Capital Float is leading the initiative through GIFF, thereby contributing to the growth of SMEs in India. Providing cutting-edge working capital solutions for the SME sector is our organisation’s raison d’etre, and we have planned our policies accordingly.
Know more about the Great Indian Finance Festival 2017 at https://www.capitalfloat.com/giff
Oct 24, 2018
Effective July 01, India would be joining a host of 160 other countries that have implemented GST/VAT in some form. This is a big step towards streamlined taxation norms. From new indirect tax slabs to drastically different taxation procedures, the Goods and Services Tax or the GST, will compel companies and taxpayers to realign their operating models.
Tax slabs in India under GST
The new indirect taxation regime is based on a four-slab tax structure, and goods and services feature in these depending on their nature – whether it is a luxury item, a necessity or a leisure item. A total of 1211 items have been categorised under these four tax slabs, with a bulk of them (including services) being placed in the 18% bracket.
|Previous tax rate (Approximate range)||GST Rate||Goods||Services|
|No tax||No tax||Items of daily and mass consumption such as milk, butter, fresh fruits and vegetables, fresh meat, flours, bread, salt, prasad, bindi, sindoor, stamps and judicial papers, colouring books, newspapers, bangles etc.||Hotels and lodges with a tariff below Rs 1000.|
|~ 5% (5% VAT and no excise)||5%||Apparel below Rs 1000 and footwear below Rs 500, and essentials like kerosene and coal, medicines and insulin, stents. Edible oil, tea, coffee, frozen vegetables, skimmed milk powder, cashewnuts, incense sticks.||Small restaurants, transport services like railways and air which have petroleum as the main input. Job works in textiles, gems, and jewellery.|
|~ 9% to 15%||12%||Apparel over Rs 1000, Ayurvedic medicines, exercise books, preserves like pickles, sauces, ketchups, and fruit and vegetable preserves, umbrellas and packaged foods like butter, ghee, cheese, dry fruits. Basic cell phones.||Non-AC hotels, pesticides and fertilisers, business class air tickets and work contracts.|
|~ 15% and 21%||28%||Luxury goods and sin goods: SUVs, aerated drinks, white goods, paints, ATM/ vending machines, vehicles, personal aircrafts; Sin goods such as bidis, chewing gum, paan masala. Certain select consumables will attract an additional cess.||Movie tickets above Rs 100, five star hotels, race clubs, betting and other luxury services.|
– Gold and rough diamonds have been allocated separate tax percentages of 3% and 0.25% respectively.
– Certain goods such as alcohol (for human consumption), consumption and sale of electricity, stamp duty and customs duty, and five petroleum products, namely, crude oil, natural gas, aviation fuel, diesel, and petrol have been excluded from GST for the initial years.
1. The GST council has revised the tax rates on 27 goods and 12 services with effect from 6 October 2017. Click here to read the revised list.
2. The GST council has revised the tax rates on 177 goods and services with effect from 15 November 2017.
3. The 25th GST Council met on 18 January 2018, where a third round of revisions was announced on 29 goods and 53 services, with effect from 25 January 2018.
Businesses will be impacted at both ends, i.e., at the inbound transactions such as imports (international business) and procurements (domestic), and at the outbound transactions, i.e., the sales. Here are some important transformations:
Place of Supply: Currently, many businesses operate on a state-wise warehousing model as transfers between inter-state warehouses are considered as stock transfers and are not liable to pay CST. Under GST, inter-state stock transfers between warehouses will also be subject to IGST at the “Place of Supply”. For example, a supplier of steel from Jharkhand to Orissa and Kerala, will need to pay IGST on the transfer of goods in Orissa and Kerala respectively. If there is a transfer of steel from the warehouse in Kerala to the warehouse in Orissa, IGST would still be applicable, but CST wouldn’t be payable on such a transaction. This change has been proposed to discourage suppliers from having multiple warehouses and adopt a single warehousing system.
Consideration of “Time of Supply Rules”: This factor determines when goods / services are to be supplied, and therefore, when the tax is to be paid (point of taxation). Under the GST, the Time of Supply for goods and services is the earlier of the following dates: (a) the date of issuing of invoice (or the last day by which invoice should have been issued) OR (b) the date of receipt of payment; whichever is earlier. For example, if the date of invoicing is May 20 and payment is received on July 1, the time of supply will be May 20. Which means that the government wants to collect the tax at the earliest possible point in time, and businesses must plan their working capital keeping in mind these advanced payment timelines.
Provisions of Input Tax Credit: Input tax refers to the taxes that a manufacturer or service provider pays while buying the raw material or inputs. Under the GST, a business can reduce the tax it has paid on inputs from the taxes collected on outputs. In effect, businesses will be taxed only on the “value addition”. For example, if a manufacturer is paying Rs 300 on final product and has paid Rs 200 on inputs, he can claim input credit on Rs 200 and has a tax liability of only Rs 100. This facility will bring down the overall tax expenses of companies.
Lower exemption thresholds for Small Scale Industries: Currently, small scale industries can avail central excise threshold exemption of Rs. 1.5 crore. With the GST, this limit will be reduced to Rs. 20 lakh. As a result, a company that used to avail tax exemption of 1.5 crore can now avail only 20 lakh, leading to higher tax payments. Benefits from higher registration threshold: Businesses with turnover of over 20 lakh (10 lakh for the North East) must mandatorily register for GST. Currently, the criteria for VAT is that businesses with turnover of over Rs 5 lakh (Rs 10 lakh for North East) must register for VAT. As a result a business that was in the Rs 5 lakh – Rs 20 lakh bracket is now exempt from indirect taxation.
These are some of the business-transactional implications of the GST. Organisations will have to design and implement extensive change management exercises to align GST with their desired business outcomes. Get more information about GST on our GST blog.
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Oct 24, 2018
GST Rate Revisions as on 6 October 2017
|Good/Service||Present GST Rate||Revised GST Rate|
|Duty credit scrips||5%||Nil|
|Mangoes sliced dried||12%||5%|
|Khakra and plain chapati / roti|
|Namkeens other than those put up in unit container and, –
(a)bearing a registered brand name; or
(b) bearing a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any actionable claim or enforceable right in respect of such brand name has been foregone voluntarily
|Ayurvedic, Unani, Siddha, Homeopathy medicines, other than those bearing a brand name|
|Paper waste or scrap|
|Food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programme duly approved by the Central Government or any State Government, subject to specified conditions||18%||5%|
|Plastic waste, parings or scrap|
|Rubber waste, parings or scrap|
|Cullet or other waste or Scrap of Glass|
|Hard Rubber waste or scrap||28%||5%|
|Sewing thread of manmade filaments, whether or not put up for retail sale||18%||12%|
|All synthetic filament yarn, such as nylon, polyester, acrylic, etc.|
|All artificial filament yarn, such as viscose rayon, cuprammonium|
|Sewing thread of manmade staple fibres|
|Yarn of manmade staple fibres|
|Modelling paste for children amusement|
|All goods falling under heading 6802 [other than those of marble and granite or those which attract 12% GST]|
|Fittings for loose-leaf binders or files, letter clips, letter corners, paper clips, indexing tags and similar office articles, of base metal; staples in strips (for example, for offices, upholstery, packaging), of base metal|
|Plain Shaft Bearing|
|Parts suitable for use solely or principally with fixed Speed Diesel Engines of power not exceeding 15HP|
|Parts suitable for use solely or principally with power driven pumps primarily designed for handling water, namely, centrifugal pumps (horizontal and vertical), deep tube-well turbine pumps, submersible pumps, axial flow and mixed flow vertical pumps|
|Imposing GST only on the net quantity of superior kerosene oil [SKO] retained for the manufacture of Linear Alkyl Benzene [LAB]||18%||18% (Clarification to be issued)|
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Oct 24, 2018