On July 1, 2017, India introduced the Goods and Services Act (GST) as the country’s biggest tax overhaul aimed at simplifying the arduous process. GST applies across the country both by the central and state governments.
What is GST?
GST is an indirect tax that has been formulated in order to subsume and unify all the other taxes like excise duty, sales tax, service tax, etc. Paid by the consumer, GST is remitted to the government by businesses selling goods and services.
The basic idea behind the implementation of GST is to unify the erstwhile layered and complex tax structure. GST is mainly divided into CGST levied at the central level, SGST at the state level and IGST for the interstate transfer of goods or services supplied.
Remember that this tax is payable on the transaction value. Now, transaction value, in simple terms, implies the price you pay for the supply of either goods or services between two unrelated parties. This further entails that the transaction value of goods and services includes several expenses like packing, forwarding, transportation, etc. Incentives applicable to these goods and services are also adjusted in the transaction value.
Any business can be classified into a provider of goods and/or services. If the annual turnover of your business that supplies goods is more than Rs 40 lakh, it is mandatory for you to get a GST registration. If you supply services, this limit is Rs 20 lakh per annum. After registration, you get a 15-digit GSTIN number through which all your transactions are completed.
Impact on small businesses
If a business does not engage in the transfer of goods and services across the state and is limited to intrastate business only, like restaurants, etc, you can pay tax under Composition Levy Scheme if the annual turnover is up to Rs 75 lakh. Under this scheme, you pay a lower tax (5% for restaurants, for instance) and the compliance requirements are also simpler.
Working capital flow
Small businesses are more vulnerable to liquidity crunches and the process of refunds and reimbursements in the country has erstwhile been awfully long. Through GST, however, the government has tried to address these concerns of the taxpayer. The ITC mechanism provided under the GST framework helps in reducing such bottlenecks. The process of refund has also been completely digitized and streamlined under GST. This, coupled with the monthly payment of tax, helps to improve the cash flow of small businesses. If you are looking to increase your working capital, you can also opt for business loans on Finserv MARKETS. On Finserv MARKETS, you can avail loans for a variety of reasons, including to upgrade infrastructure, buy and repair machinery and purchase raw materials. Be it MSMEs or start-ups, the business loans on Finserv MARKETS can help businesses reach their potential. With flexible repayment tenures, minimum documentation and zeo collateral needed, you can be well on your way to increasing your working and growing your business by opting for a loan on Finserv MARKETS.
You must know what charges are levied on the goods or services that your business provides. If you go to the GST website, you would see the tax rate pertaining to any particular goods or services along with a code. In the case of goods, this is the HSN code (Harmonized System Nomenclature) while in for services, you get SCN code. Providing these codes for the accurate levy of GST is important while you are filing your returns.
After paying the requisite GST, you have to file the returns at the GST portal provided by the government. If your annual turnover is less than Rs 5 crore, you can also choose to file your returns in every quarter.
As an entrepreneur, it is imperative for you to know that to ensure GST compliance, there are two types of invoices: tax invoice and the bill of supply. Invoice for goods can be issued anytime before the item is delivered while for the supply of services, it can be done within a month’s time.
If you are a small entrepreneur, you might find it difficult to hire a team of expert resources to ensure tax compliance of your businesses. GST has brought with itself a simple compliance process for the taxpayer’s benefit and ease. Through the Self Assessment Model, you can ensure compliance yourself through the GST portal. GST compliance comes with its own set of benefits, including increasing your chances of availing business loans for the growth of your company.
In India, small businesses are one of the most crucial growth drivers of the economy. The digitization and simplification of the plethora of indirect taxes through the implementation of GST will prove to be a boon for entrepreneurs in the long run. Today, becoming an entrepreneur has also become an achievable dream for most of us, thanks to the easy accessibility of business loans. For instance, if you take a Bajaj Finserv business loan available on Finserv MARKETS, you can enjoy instant loan approvals, flexible repayment tenures and speedy disbursement along with a host of other benefits.
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