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How Will the Revised GST Impact Business Loan Interest Rates?

The introduction of the Goods and Services Tax (GST) in July 2017 brought numerous changes in the income and expenditure of the businesses in India. As a replacement for several kinds of taxes such as Service Tax, Value Added Tax (VAT), Swachh Bharat Cess and Krishi Kalyan Cess, among others, the GST as a subsumed entity for indirect taxation was appreciated largely.

However, this consolidated tax also became a pain for many. On consumer goods such as electrical wires & cables, tiles, furniture, mattresses, watches, shampoos and perfumes, the rate was as high as 28%. The items became too expensive for the end consumers due to this soaring tax proportion. For the sellers of these goods, it meant a hit on the demand.

Voices were raised against the high tax rates as its impact was also observed on the economy.
Relenting to the opposition from the business community and the general public, the government brought some changes in the GST structure in the same financial year. In November 2017, the GST Council announced several changes in the tax rates and decided that the rate of 28% will be retained only for ‘luxury goods’ and the products such as cigarettes and tobacco that are considered socially ‘sinful’. Consequently, more than 170 items that were originally in the 28% bracket were shifted to the 18% bracket. The tax rate was also cut down for many other items.

Was the business loan interest rate in India also impacted by this change in GST?
The tax rate on loans was set at 18% in July 2017, and this remained unchanged even in November 2017. However, a deeper analysis involving EMI payments will reveal that loans became more affordable for many business organisations after the revision of GST. Borrowers can conveniently pay the principal and interest on their business loans due to more sales and the consequent increase in their revenue.

Here is how:
Many businesses that had checked a digital business loan interest rates calculator to get an idea of the amount they will pay as loan interest had to cancel their plans of taking the loan due to the high tax imposed on their own business offerings. They expected a fall in demand for their products and services due to the high tax rates announced in July 2017. The organisations that had simply enquired about business loan interest rate in India from banks and non-banking finance companies (NBFCs) also terminated or deferred their plans of taking such loans. The revision of GST in November 2017 brought relief for many.

To illustrate with an example, the restaurants that were planning to expand their premises or add new services with the support of business loans expected a decrease in footfalls after the imposition of 18% tax on their bills. To a large extent, the demand for eating out in restaurants did indeed go down. However, when the revised GST for (most) restaurants was dropped to 5%, it was a significant relief for the owners. This new rate made things even better than the pre-GST era when they faced a service tax of 15% + VAT. Consequently, the business development plans that were put off earlier could now be taken ahead.

Similar was the case with other businesses that came in a lower tax bracket after the revision of GST. The affordability of paying loan EMIs improved even though there was no direct effect of the GST Act amendment on the business loan interest rate in India.

What other factors make this a good time to apply for a business loan?
Under the Make in India campaign, the government is providing several incentives to the small and medium enterprises to develop their operations. The effects of de-monetisation have also neutralised now and there is an adequate flow of cash in the economy. Along with this, the Income Tax refunds and GST refunds from the assessing officers are reaching people and they can use these funds for making their loan EMI payments.

In addition to the banks, the digital NBFCs, more popularly known as FinTech (an acronym for Financial Technology) companies, are the sources of commercial funds in India. They publish a business loan interest rate calculator on their websites to give a fair idea of the EMIs to the prospective borrowers. Other details, such as the loan processing fee and prepayment penalty if any, can be sought from the website or customer service team.

What about the loan application process?
If yours is a business that has gained from the revised GST and you too wish to use this opportunity to expand your organisation, the procedure to apply for a loan is not complex at all. India is at a high level of digitalisation and getting a loan is much easier than what it was two years back. You can not only send an inquiry or application for business loans online but also attach all the documents that are needed to substantiate the request. A FinTech lender accepts paperwork such as business balance sheet, profit and loss statements, bank account statements, tax returns filing and Know Your Customer (KYC) records in soft copy formats. You don’t even have to visit the branch to physically sign your application.

If your business fulfils the eligibility requirements and the supporting documents are verified, the approval of the loan comes in minutes on the same day that you send the application. And how soon can you actually get the amount? That takes another 48-72 hours. You don’t need to collect a cheque for the funds as they are transferred directly to your bank account.

You can conveniently get a short-term loan from a FinTech if you do not like to be in debt for years. Unlike traditional lenders, FinTechs do not insist on stretching the business loan tenure to four or five years. Most of them are also willing to offer funds that can be paid back completely in 9-12 months.

If a micro, small or medium enterprise is capable of growing and increasing its revenue, it should take every legitimate step in the direction. A business loan fuels the development of an organisation without pressuring the owners to use their personal funds for such work. While taking a loan from a FinTech company, they don’t even need collateral for the approval of their application.

With a lower GST and the ease of borrowing, isn’t this the perfect time for a commercial fund? Go ahead and proceed with your search for the friendliest lender, and very soon you will be on your way to expansion.

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