All You Wanted to Know About the Impact of GST on Business Loan EMIs

The Goods and Services Tax (GST) has consolidated the tax structure for businesses across India by bringing convenience to several sections of trade and commerce.  The replacement of VAT, Service Tax and numerous other central and state-levied taxes with a uniform tax rate, if viewed holistically, is also a welcome move for potential business borrowers. 

After its initial implementation in July 2017, the GST law was modified in November and this made things even better for various organisations. 

The prominent highlights of this move were: 

  • The frequency of filing returns for businesses with a turnover of less than 1.5 crores was changed to quarterly from monthly. 
  • GST rate for restaurants was reduced from 18% to 5%. 
  • The tax rate was decreased for shampoos, perfumes, watches and tiles, aligned in different brackets. 
  • Reduction in tax rate was also seen for some processed food items and cattle feed. 

The elimination of multiple taxes on transactions leads to a simpler tax structure implying a reduction in paperwork and complexities of accounting. With more time to focus on their revenue-generating activities, and maximising their revenue due to the decrease in tax rate, businesses can concentrate on procuring loans to improve their operations. 

A quick calculation on Small business loans EMI calculator will reveal that the loan repayment capabilities have only improved now. 

What improves eligibility of businesses for loans in the GST era?

Summarily, it is the combined effect of reduced taxation rate (for some businesses) and the overall reduction in bookkeeping for different taxes that makes things better for commercial organisations. The economy will be abuzz with more activity in the new era of business taxes. 

As an example, the GST rate for restaurants has been reduced from 18% to 5%, helping restaurant owners to get more customers. Orders for home deliveries of foods also recorded an increase because of the enthusiasm generated since the change in November 2017. It coincided with the festive season resulting in further orders. 

Capitalising upon the increase in demand for their products, the restaurants who had procured commercial loans recently can manage to make repayments more conveniently. 

The ones who plan to take a loan in the near future on the basis of improved cash flow after GST reduction can use a Small business loan EMI calculator to check the amounts they will be expected to pay each month. Most of the established institutional lenders publish such tools on their official websites.

On account of increased demand for their products, restaurants will also place bigger orders on their supplies for ingredients and packaging material. This, in turn, helps another section of the industry with bigger revenue earnings and helps them qualify for loans that they were planning to procure. 

Retail is another major domain where business owners will feel encouraged to check the EMI calculator for business loans. 

Here’s why:

When GST was initially rolled out in July, the government had proposed four slabs of tax at 5%, 12%, 18% and 28% on different consumer goods. With a drop in the tax rate for a number of items in November, there was a relief for consumers and also the retailers through whom they buy these products. This will have a positive impact on demand factor and eventually for the business. Retailers can leverage any increase in their earnings for smooth loan repayments. 

An impact of GST is also observed on the warehouse networks of retail shops. Since the Central Sales Tax (CST) got abolished, the retail store chains will not have to necessarily maintain warehouses in every state that they operate in. This can result in 20% to 30% consolidation of warehouses. With state boundaries losing their distinctiveness, transportation will also gain. The net impact of all such changes implies that supply chains will get more efficient as they need not be aligned with the formerly inconsistent taxation systems. 

With more transparency in their tax filings and streamlined input tax credit (ITC), businesses will be able to afford smoother repayments on amounts borrowed from financial institutions.

Why borrow for business in the GST era?

If you have been planning to borrow for business improvements, this is indeed the best time to get commercial loans. Use a term loan EMI calculator to check the instalments you will be expected to pay against the amount borrowed. You can leverage your increased income to afford regular repayments. 

  • Buying additional premises 

A business loan can be used to purchase a new property and grow the venture. Expansion is a good idea only when a company is enjoying better cash flows. Thanks to their digital processes, the FinTech lenders approve term loans for such growth endeavours in no time.  

  • Investing in more equipment and inventory

Another reason to procure a business loan at this time can be the purchase of new equipment and/or inventory. GST has unified the taxation system across India and it therefore helps in eliminating the cascading tax impact. The input tax credit can also be availed on both goods and services thereby reducing the tax burden on businesses. Thanks to these benefits, there are more options to acquire useful new equipment and purchase inventory. Goods purchased in bulk prior to seasonal sales – such as winter apparel, room heaters, festive items, and air conditioners – help retailers to be well stocked for the sudden rise in demand. 

  • Strengthening working capital 

Some businesses also borrow to increase their working capital for miscellaneous activities. If your calculations show that you can effectively use such extra funds to upgrade business operations after the GST implementation, this is a good time to make the move.

  • Closing the loan without a prepayment penalty clause

Digital FinTech companies have established themselves as reliable sources of business finance and cater to the changing needs of their clients in this new phase of the economy. They not only offer the convenience of collateral-free loans but also do not levy any prepayment charges on loan repayments. Hence, your business need not stay debt-ridden for the entire tenure of repayment. If there are additional earnings, you can use them to pay off the amount without any extra fee. 

If you are ready to draw upon the benefits of GST, choose your loan source by starting the research online. A term loan EMI calculator will help you understand that your repayment capacity has increased now.