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In developing countries the share of indirect tax is much higher than direct tax. GST implementation allows the government to have a better grip on taxpayers.
When you are making a purchase the final cost will come along with a GST amount. You can claim input tax credit on the GST paid on the purchases that you make. So when you are purchasing machinery for your business, you would pay GST in addition to its original price. This GST can be claimed as credit in the same way as inputs. But you cannot claim input tax credit if you claim depreciation on the GST paid while purchasing the capital asset.
Goods and Service Tax (GST) is paid by the consumers for the products or services. But the GST will be remitted to the government by the businesses who are providing you with those products and services. This GST will be included in the final price that is to be paid by the consumer and then is passed on to the government by the seller. This system is adapted across the whole country, which means a single tax rate is applied. The objective of introducing GST in India was to eliminate tax on tax(double taxation).
There are both negative and positive impacts on small businesses when it comes to GST. But when it is considered for the long term, GST has a positive effect. The GST payable is split into SGST, CGST and IGST, but only one single registration is required for all of them. GST registration also doesn’t need physical paperwork as most of the uploads can be managed online and digitally signed.
Since the introduction of the GST regime, one of the benefits is that your tax payments can be done online. To make GST payments more convenient, each registered taxpayer gets an electronic credit ledger. The electronic credit ledger displays the input tax credit balance available to the registered taxpayer. An electronic cash ledger reflects the amount of cash available to settle the tax liability.
GST is not applicable on loan interest. Before the introduction of GST, service taxes were levied on loans. The rate of service taxes were 15%, whereas the rate of GST is 18%. As there was a 3% increase due to the change in the tax scheme, some people might have assumed that interest rates would also be affected. But GST is not levied on EMIs of the loan or on the payment of interest on the loan. It will be levied only on the processing charges and other charges that your lender would be charging you.
GST is not applicable on your EMI payments. Before the introduction of GST, service taxes were levied on loans. The rate of service taxes were 15%, whereas the rate of GST is 18%. People might think that the EMI costs will be affected because the rate of GSTs increased by 3%. But GST is not levied on EMIs of the loan or on the payment of interest on the loan. It is levied only on the processing charges and other charges that your lender charges you.
GST will not affect your loan repayments. Before the introduction of GST, service taxes were being levied on loans. The rate of service taxes were 15%, whereas the rate of GST is 18%. People might think that the EMI costs will be affected because the rate of GSTs increased by 3%. But GST is not levied on repayment of the loan or on the payment of interest on the loan. It will be levied only on the processing charges and other charges that your lender would be imposing, excluding the repayment amounts and the interest amounts. Charges like the loan processing charges or the prepayment charges.
A government’s official website, PSB loan in 59 minutes, provides MSME loan borrowers funds for their businesses. Prime Minister Modi introduced an offer to provide Rs. 1 crore loan in 59 minutes, which can be availed on the same website. This loan is intended for the MSME sector and loans from Rs. 10 lakhs to Rs. 1 crore will be provided. This website reduces the approval time from 20-25 days to 59 minutes. After the approval of the loan, it will be disbursed within a week.
When it comes to GST, there are both positive impacts and challenges that are faced by small and medium enterprises. If a business operates across different states, your business would have required VAT registration, before GST was introduced. Different tax rules in different states incurred high procedural fees. With the introduction of GST, starting a business as well as expansion has become easier, which is an added advantage for SMEs.
GST (Goods and Service Tax) has a direct link with your working capital and can impact your business's liquidity. With the introduction of GST, inventory management has seen a big change. Earlier, companies had warehouses in each state to avoid cross border taxation costs. Upkeeping all the warehouses would have been cumbersome, with all the different tax structures. Since GST has been introduced, the companies only have to maintain 4-5 warehouses to fulfill demand across all the states in the country. When the goods are moved, they don’t have to pay taxes every time they cross the border. This will save a lot of working capital.
GST is an indirect tax that is levied on goods and services. Business loans have become expensive after the implementation of GST. This is because the GST is levied at the rate of 18%. Thus, the processing fees of these loans make it expensive for borrowers.
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