Budget 2021 – Let’s Ideate

“Send me your inputs so that we can see a Budget which is a Budget like never before, in a way. 100 years of India wouldn’t have seen a Budget being made post-pandemic like this. And that is not going to be possible unless I get your inputs and wish list, clear observation of what has put you through the challenge… Without that, it is impossible for me to draft something which is going to be that Budget like never before” – Hon’ble Finance Minister of India.

In the spirit of the aforementioned words of the Hon’ble Finance Minister, this article attempts to deliberate on certain aspects of the tax law, and how certain changes may help the respective classes of taxpayers and businesses concerned.

1. Liberalization of the scheme for voluntary declaration of unaccounted income
At present, the effective tax rate for declaring unaccounted income voluntarily in your income tax return is 78%. The very thought of losing 78% of the fortune deters such declarations. Can this regime be replaced with an effective tax rate of about 35% on declared unaccounted income coupled with a compulsory deposit of 40% of the declared amount in 15-year bonds? In such a case, the declarant gets to keep 65% of their declared amount though they get 40% back in their hands after 15 years. The government can allow banks to issue these 15-year bonds and use the money for credit expansion at low rates of interest to boost the economy.

2. Cashback to the final consumer a portion of GST paid if the purchase is through cashless means
An incentive like this from the government for a limited duration will encourage people to increase their purchases, thereby boosting the consumption demand and subsequently, the economy. Cashback to the final consumer will be more effective than cutting the GST rates as oftentimes rate cuts are not passed on by businesses. The Government may consider adding an additional condition that only “Made In India” products be eligible for cashbacks.

3. Discussion points arising out of Covid-19
Many individuals have got stuck in India due to travel restrictions, necessitating stay with family in India while working for foreign employers. The government released a clarification in May 2020 excluding the period between 22 March 2020 and 31 March 2020, while determining the residential status for FY 2019-20. Similar clarification is expected for FY 2020-21 as well since a change in residential status may result in increased tax liability for some individuals who have been forced to stay in India.

Furthermore, the Government may also consider providing additional tax deductions for expenses incurred on Covid-19 tests and treatment in private hospitals, which is a need of the hour.

4. Measures for easing the cash flow burden
Relaxation of advance tax norms with respect to Dividend income
India has moved to the traditional system of taxation of dividend, whereby the shareholder pays tax on the dividend income as compared to the company paying tax on such dividend declared, which was previously the case. Thus, it may be beneficial for the advance tax provisions to be amended suitably to provide relaxation from levy of interest if the shortfall in payment of advance tax is attributable to under-estimation of the dividend income.

Enhance the scope to apply for lower tax collection certificate
The scope of Tax Collected at Source (TCS) has been widened to cover the sale of motor vehicles, remittance of foreign currency under LRS or sale of an overseas tour package and sale of goods. This has resulted in persons covered by the said TCS provisions paying something more (in the form of TCS) at the time of purchasing goods or vehicles or making foreign remittances, as the case may be. A budget proposal enabling such persons (if their estimated tax liability justifies collection of tax at a lower rate) to apply for a lower tax collection certificate would go a long way in easing the crunch in cash flow resulting from an increase in cash outflow on account of TCS at the time of purchase.

With the promise of a Budget like never before, the nation waits in anticipation for the clock to strike 11 on the morning of 1st February 2021 – the date and time when the Budget speech will be delivered!

The author Rishi Dabrai can be reached at ndjandassociates@gmail.com or at +919945236982

Rishi Dabrai
Chartered Accountant
Partner, NDJ & Associates

“DISCLAIMER: The views expressed are solely based on the opinion of the author and Capital Float (CapFloat Financial Services Pvt Ltd) does not necessarily endorse or subscribe to it. Capital Float (CapFloat Financial Services Pvt Ltd) shall not be liable for any loss/damage caused to any person/organization directly or indirectly. Capital Float does not guarantee the contents of the views expressed and the same are not binding on Capital Float.”

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Changes in the GST Taxation System – with effect from 15 November 2017

Composition Scheme Changes

  • GST rate at 1% for manufacturers and traders
  • Composition scheme limit to be extended to ₹1.5 crore
  • Composition tax of 1% on turnover of taxable goods
  • Interstate sales are not permissible for composition dealers. Input tax benefit not allowed.

GST Filing Extensions

GSTR form Previous Due Date Revised Due Date
GSTR-5 (for Non-Residents) Before 20th August 2017 or & days from date of registration 15th December 2017
GSTR-4 (for Composition Dealers) 18th October 2017 24th December 2017
GSTR-6 (for Input Service Distributors) 13th August 2017 31st December 2017
ITC-04 (for the quarter of July-September) 25th October 2017 31st December 2017
TRAN-1 30th September 2017 31st December 2017

Taxpayer Relief Measures

  • Reduced Late Fee: For delay in the filing of NIL returns, late fee will be reduced from ₹200 per day to ₹20 per day.
  • Credit of Late Fee: For filing of GSTR-3B for the months of July, August and September, late fee has been waived. Any late fee paid will be credited back in Electronic Cash Ledger under ‘Tax’ and can be utilized for GST payments.
  • Manual filing for ‘Advance Ruling’ to be introduced
  • Export of services to Nepal and Bhutan are now exempt from GST. Input tax credit, if paid, can be claimed for refund.
  • Taxpayers with turnover less than ₹1 crore should file invoices every month, while those with turnover greater than ₹1 crore should file invoices every quarter.

Revised GST Rates for 178 Goods and Services

Goods/Services Present GST Rates Revised GST Rates
Guar meal, Khandsari sugar, Dried or frozen vegetables, Uranium ore concentrate, Hop cones, Unworked coconut shells 5% Nil
Desiccated coconut, Idli Dosa Batter, Coir products, Fly ash bricks, Worn clothes or rags, Fishing hooks, Leather or chamois after tanning or crusting, Nets of textile material, Restaurants (non-Ac) 12% 5%
Potato flour, Chutney powder, Sulphur recovered as by-product in refining of crude oil, Specified parts of aircraft, Scientific and technical apparatus, Computer software and accessories, Restaurants (AC) 18% 5%
Condensed milk, Diabetic foods, Refined sugar, Medicinal grade oxygen, Printing, writing and drawing inks, Pasta, Curry paste, Mayonnaise and salad dressings, Mixed seasoning, Parts of agricultural & sewing machinery, Bamboo and cane furniture, Frames and mountings for spectacles, Hand bags and shopping bags of cotton and jute 18% 12%
Wet grinders, Tanks and other armoured fighting vehicles 28% 12%
Chewing gum, Chocolates, Preparation of facial make-up, Preparations for oral hygiene, Toothpaste, Shaving and after-shave items, Shampoo, Deodorants, Detergents, Granite and marble, Handmade furniture, Electric switches, Watches, Sanitary ware, Cases, Cutlery, Refrigerators, Flavoured drinks, Water heaters, Fire extinguishers, Printers, Automatic goods vending machine, Transmission shafts and cranks, Fork-lift trucks, Self-propelled bulldozers, Batteries, Static converters, Vacuum cleaners, Cameras and projectors, Microscopes, Musical instruments 28% 18%

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Oct 24, 2018

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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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

Apply for Unsecured school loan

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

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5 Common SME Financing Mistakes To Avoid

The SME (small and medium enterprises) sector is an important contributor to India’s economic growth. Even though their product or service may add great value for certain people, many SMEs face challenges. This is mostly because of the lack of research and planning by the business owners about the potential opportunities and risks of the particular niche in which these units operate. Many-a-times such businesses fail to make accurate assessments of their working capital requirements and, even when they do, cannot find ways to finance them.

Some common financing mistakes made by SMEs relate to whether or not to borrow, estimating the correct amount of SME business loan required, checking the full financing cost, the time wasted on getting a loan approved and the opportunity costs.

SME Financing Options and Some Common Mistakes

The Government and the private sector have taken several initiatives to increase availability of small business loans to SMEs in India. Despite the improved availability of SME finance, many units are still struggle with easy access to finance. This is mainly due to the lack of awareness of new-age, innovative financing solutions that are offered by FinTech lenders like Capital Float.

Here are the five most common financing mistakes made by SMEs:

1. Lack of Planning: One of the gravest shortcomings of smaller businesses is the inability to plan for the longer term. Business owners tend to get so involved with daily operations, troubleshooting and trying to complete orders that they fail to step back and look at the bigger picture. In the absence of a business plan, many SMEs do not foresee the amount of cash they would require to grow and expand. They suddenly find themselves in a severe cash crunch, unable to meet their working capital needs.

A sound business plan is essential for approaching a bank for a loan. Moreover, the ability to project a cash crunch or the funds needed to grow would allow SMEs to approach banks in time, since traditional lending institutions may take months before sanctioning the loan. This is where FinTech lenders have eased the situation. By deploying cutting-edge technology, Capital Float can ensure loan approval within hours. The use of powerful algorisms helps determine the prospects of a business, easing the process of loan approval. In fact, such lenders do not require a formal business plan for sanctioning SME finance.

2.Wrong Estimation of Funds Required: Most business owners feel anxious about overestimating their loan requirement and having to pay interest on excess funds. This makes them lean towards underestimating their costs. Thus, even when a loan is disbursed, these businesses are left wanting for more. Of course, the overestimation of the loan requirement hits the bottom-line.

What such businesses need is Capital Float’s Pay Later Finance product, which offers a Predetermined credit amount. While a credit amount is determined, based on the prospects of the business, the SME has the flexibility to transfer only as much funds, as it currently needs. Repayments can be made as the business generates money, and the repayment restores the credit amount, making funds available for future requirements.

3.Hidden Charges: Several lenders burden SMEs with hidden fees. These charges may be exorbitant and the business owner may not even know when they are levied. At Capital Float, perfect transparency is maintained, with no hidden charges. In fact, unlike most traditional banking institutions that impose a fee for the early repayment of a loan, there are no prepayment charges at Capital Float.

4.Choosing the Wrong SME Finance Product: Most SMEs turn toward unorganized moneylenders or traditional banking institutions to borrow money. These loans are not tailored to the specific needs of the SMEs. New-age lenders like Capital Float offer various SME business loans that have been designed keeping in mind the needs, business model and ability to repay of different businesses.

5.Trying to Arrange Collateral: SMEs sometimes put too much at stake to get a loan or do not borrow money in the absence of collateral. Capital Float offers small business loans in India without the requirement for collateral. One can also opt for a Merchant Cash Advance, which converts accounts receivables of a business to quick and usable funds.

Apart from these common mistakes made by small businesses, the timing of the loan approval and receipt of funds plays a critical role in the success of SMEs. Any delay in arranging the necessary funds can prove catastrophic for a business. This is mainly because SMEs often do not have sufficient negotiating power with their suppliers. They need to make payments for raw materials long before they can raise an invoice to their customers.

The rapid evolution of technology to address SME finance needs have revolutionized the lending space. The objective of FinTech lenders is to eliminate the liquidity issues faced by the SME sector by ensuring the quick approval and disbursal of the loan amount, while also making it easier for these smaller businesses to repay the loan. However, to make use of these advantages, SMEs need to be made aware of such options.

Oct 24, 2018