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Tata Capital > Blog > Loan for Business > How GST Will Impact Business Loans?

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How GST Will Impact Business Loans?

How GST Will Impact Business Loans?

The much-awaited Goods and Services (GST) Bill was finally approved in the Houses of Parliament. This will be the biggest change that indirect taxes in independent India have gone through. Implementation of GST from 1st July 2017 will make the tax system simpler and there will be several more benefits under this regime. The government expects to see a boost in tax revenues and improve in compliance after the implementation of GST.

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1. Impact on business loans

Business loans are likely to become slightly expensive after the implementation of GST. This is because the service tax on a business loan is currently 15%; however, GST will be levied at the rate of 18%. This will increase the processing fees on these loans making it marginally expensive for borrowers. Nonetheless, the potential growth opportunities available to businesses make this small increase almost negligible in the longer term.

2. Importance of GST

Even though GST will make availing of a business loan marginally more expensive, it will bring about positive change for business owners. Here are four ways in which GST will be an important tax modification, especially for business owners.

3. Simpler tax systems

With the elimination of multiple taxes and a singular tax structure, the procedures will become simpler. The market expects a reduction in paperwork and complexities in accounting principles. Simple tax systems will make it easier for owners to conduct business.

4. Competitive pricing

Since GST will eliminate all other types of indirect taxes, the prices paid by consumers are expected to decrease. As a result, there would be a boost to demand and consumption, which will benefit business owners.

5. Boost in exports

As production costs decrease in the post-GST regime, the Indian goods and services will be priced competitively in international markets. Therefore, exporters will be able to compete with global manufacturers and boost exports. Lenders are expected to take advantage of this potential growth by increasing disbursement of commercial loans to businesses.

6. Un-fragmented national market

With GST entry tax barriers will be eliminated, which will result in an un-fragmented national market for goods and services. As a result, sourcing, warehousing, and distribution are expected to become easier and quicker among the states. Furthermore, businesses will not have to pay interstate taxes, which will increase cash flows that may be used to expand their business. Banks and non-banking financial companies (NBFCs) expect to see an increase in the demand for business loans as organizations try to expand their ventures in the post-GST era. NBFCs like Tata Capital offer business finance to small and medium enterprises (SMEs). These funds may be used for various purposes like operational expenses, buying new plant and machinery, or expanding into new markets.

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