The Goods and Service Tax (GST) was introduced to standardize the indirect taxation system in India. This included previous state or central tax laws. This tax has four slabs to create a new indirect tax system.
The previous system had a big impact on businesses, particularly their working capital. The different taxes brought huge revenues for the government but at major costs for businesses.
There was a hidden nature to these taxes spread through different stages in the product cycle. This consequently drained businesses’ working capital. For developing countries like India, the proportion of indirect taxes is way higher during tax collections.
GST changed the tax buckets, which changed the way businesses do business. This is because it affected their cash flows and timelines in a positive way. Working capital is what keeps a business up and running. And working capital is extremely important to MSMEs (Micro Small and Medium Enterprises) for their day-to-day operations.
General Impact of GST on Business Loans
Before we look at the reasons, let’s understand what the general impact of GST on business loans are. The GST rollout made it marginally expensive for businesses wanting to borrow, since it raised processing fees. But the small increase is pretty insignificant when we consider the potential growth possibilities available to businesses in the long-term. But with new rules and uniformity across all states, things have become a lot simpler for MSMEs and large multinationals to go about their business activities.
It becomes an important part of their growth and success. Most businesses need loans but if a business is GST-compliant, they will find getting business loans extremely easy. For instance, on Finserv MARKETS, you can get business loans approved within 24 hours through their easy eligibility criteria with minimal documents required. You can choose to withdraw only the amounts you need with interest charged solely on the amount withdrawn. This helps lower your EMIs up to 45%, thus boosting your cash flow. You can enjoy repayment options based on your cash flow with zero prepayment charges. Choose to repay the whole principal at the end of the tenure while repaying only interests as your EMIs. You can also read about the impact of GST on Loans.
With the availability of platforms like Finserv MARKETS, getting a business loan is a breeze. What’s more, this becomes even more simplified with the implementation of GST. Here are some of the reasons why availing a business loan with the current tax regime will be easy.
Business Initiation Across Different States Is A Lot Simpler
Prior to GST implementation, anyone wanting to start a business functioning in different states needed separate VAT registrations for each state. They would need to study and comply with every rule set by each local government. What made things more difficult was the rules varied across states, which was especially draining on small entrepreneurs and MSMEs. GST is more uniform with clear rules in all states. The portal allows easy application processes, thereby, making it even easier to stay compliant.
Your Company’s Visibility Will Be Higher In A Competitive Market
A big impact of the GST is it being levied based on the sales destination and not the product source. It levies the same amount of tax on both locally made products and imported goods. This also works on stock transfer of goods, which puts large businesses and MSMEs on the same playing field. Overall, it brings an environment with innumerable opportunities for small local businesses to work competitively well in global markets.
Decreased Tax Burden
Previously, the minimum threshold of turnover rates for small businesses was INR 5 lakhs to be applicable for VAT. So, small businesses needed to pay substantial tax amounts. Now, the GST has changed norms wherein they shifted the minimum threshold to INR 20 lakhs. At a grassroots level, small businesses will be able to flourish, establish themselves with good revenue, and fall below the category required to pay GST.
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Higher Cash Flows
GST laws now make it easier for businesses to apply for loans required to pay off expenses on supplies like raw materials. The best part is tax payable on supplies can be balanced out through tax collections on sales. This provides the needed flexibility in cash flows and budgeting.
If you run an MSME business and are looking for a business loan, on Finserv MARKETS, you have a number of great options to choose from. They can help you meet your working capital needs or other financial needs for running your business. For small businesses, you can get loans up to INR 30 lakhs in just 24 hours. You can even get customised loans to give your business the needed financial boost to scale new heights through better competitiveness and higher profitability. These loans can help you meet your needs, be it short-term, intermediate-term, or long-term finances.
Definitely, GST has made availing business loans more expensive. But it has made it a lot easier to do business competitively in the domestic and international markets. Being GST-compliant allows businesses, particularly SMEs, to enjoy easier business initiation, decreased tax burden, expansive visibility in the market, and higher flexible cash flows. So, as much as it pinches on finances, it also allows businesses to thrive in the market with ease in a centralized taxation system. For the long-run, being GST-compliant is the way to go for MSMEs in India.
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