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What are the tax implications of the GST regime on your existing loans?

By Finserv MARKETS - Dec 5,2019
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What are the tax implications of the GST

In a move to bring the country under one uniform taxation law, the Central Government of India implemented the Goods and Services Tax (GST) in July 2017. The older tax regulations included several different types of indirect taxes levied at different stages. States too had their own sets of tax rules which led to overlaps in state and central tax levying.

Under the new rules there are primarily three types of GST namely, Central GST, State GST and Integrated GST.

i) Central GST (CGST)– tax collected by the central government on a sale that happens within a state.

ii) State GST (SGST) – tax collected by the state government on a sale that occurs within a state.

iii) Integrated GST (IGST) – tax collected by the central government on a transaction that occurs between two states.

Get to know about components of GST in detail.

How would GST affect business, especially SMEs in India?

For businesses across India, especially Small and Medium Enterprises, the newly implemented GST has proved to be a boon. Previously, new businesses needed to apply for VAT registration before they could begin operating. Furthermore, by the implementation of a singular tax structure, accounting has become easier for SMEs which have lesser manpower. For SMEs of turnover of Rs 1.5 crore, filing is also now only to be quarterly and not monthly thus making it even more convenient. Thus in the process of being GST-complaint, businesses are ensuring clear channels for them to avail more credit as well in the future.

What are the tax implications of the GST

Source: Insights on India

How does GST impact an existing business loan?

Vinay Shikawat runs a small printing press in his town of Vadodara. In order to procure new printing equipment and keep his business afloat, Vinay took a business loan in 2016 for a sum of 15 lakhs, which was sanctioned by the bank. At the time of receiving his business loan amount, the tax regime was different.

Previously, the tax on business loans was levied at 15%, under the GST which has now been raised to 18%. But, this nominal increase will not greatly affect the financial health of a business, especially considering the benefits that GST has provided for SMEs across the nation. This also offset by the fact that GST-complaint businesses are no longer burdened by having to comply with multiple tax structures.

Furtherance of Business was a concept that was introduced under GST which allows credit for any business inputs that are to be used right away or eventually for the furtherance of business. The key takeaway here being the lowering of the cost of operations along with the increase in net margins. Here in Vinay’s case, this would lead to a visible improvement in the working capital flow of the business and thereby have a positive impact on the line of credit as well.

If you’re a small business owner looking for a business loan, you can consider Finserv MARKETS, an online platform where you can find great options. Quickly meet your working capital needs or long-term business needs with loans up to INR 30 lakhs. Enjoy customization of loan for your unique business and receive the boost your finances need to help you achieve your ambitions.

GST: An important cog to boost the SME ecosystem

Another added benefit of GST is the mandatory invoicing. Previously, banks were reluctant to issue new loans especially to smaller enterprises since their books weren’t always accurate. For all GST-compliant businesses invoicing is done transparently thus the financial health of the business can easily be ascertained and the bank’s decision to give a loan can be made more efficiently.

For businesses, on Finserv MARKETS, you can have your business loan approved within a short time period of 24 hours. What’s even better is that you only need 2 documents to get through the process. It also offers great flexibility in terms of how you want to use your loan amount. Don’t want to withdraw the whole amount? You have the freedom to withdraw only what you need and will be charged interest for that amount alone. Here your cash flow is boosted because this can help lower your EMIs by up to 45%.

Repayment options are based on your cash flow with zero prepayment charges so you have the option to repay the entire principal at the end of the tenure while paying only interest as your regular EMIs. Reach new heights with improved competitiveness and increased profitability.

Conclusion

While GST has made business loans marginally more expensive, when compared with the benefits it brings for SMEs, the new tax regime truly is working in favour of small businesses which are the backbone of the nation.

“Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App”.

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522