26-Aug-2017 written by : FSI-Team
The implementation of the Goods and Services Tax (GST) in India has been one of the most significant reforms that independent India has witnessed. Nearly two months down the line, GST repercussions are still being felt as corporate India reconciles to the new taxation regime. While the process to be GST compliant has been painstaking, especially for small businesses, the simplification of tax regime spells good news for the Indian economy in the long run.
One of the major grouses against GST has been the fact that small businesses have had to incur extra costs to overhaul their entire accounting and ERP software to become GST compliant. Others, have had to opt for additional recurring costs of hiring a chartered accountant who will help the business with the process of reconciliation with the new tax regime.
While these are some issues that small businesses are still grappling with, the implementation of GST is set to benefit an individual entrepreneur especially if he is finding it difficult to access traditional lending. In fact, GST compliance in a timely manner may increase his scores and increase his creditworthiness. Here is how.
As you may already be aware, your CIBIL score calculation plays an important role in determining whether or not a lender deems you fit to access further credit. Thus, if have tried to maintain a good credit track record, you are likely to have a good CIBIL score. This will add to your credibility when you apply for a small business loan. A small business that does not have a past credit record as an establishment is assessed by the credibility of the business owner. Thus, if you have established a good credit record, your chances of getting a business loan are high.
By linking Aadhar card to PAN card, that in turn in linked to the bank account, the Government and the tax authorities have removed all chances of tax evasion. This means that small business owners will no longer be able to evade taxes. This interconnection between the PAN, Aadhar and bank account also creates an automatic tracking system, that a lender can access while in the process of scrutinising business transactions. This in turn serves as a litmus test for authenticity. An entrepreneur may not therefore have to walk the extra mile to prove the authenticity of his transactions or his tax records as they will show up automatically.
Finally, GST brings a whole lot of unorganised players under the ambit of organised businesses. This means that a lot of erstwhile unorganised business owners will now have to follow the correct form of invoicing.
Under invoicing which was especially common in the import business to avoid tax incidence will be impossible. As a result, there will be more transparency and ease of doing business. Further, invoicing under the new GST norms will establish a clearly discernible audit trail for a small business. Transparent processes and credibility will therefore enable small business owners to avail business loans at competitive rates.
Therefore, if you are a small business owner or an entrepreneur, GST compliance is good for you in more ways than one. Anybody complying with GST will also get a GST compliance rating. Factors such as timely payment of taxes and returns and meeting other reconciliation criteria under the GST regime will earn you a high compliance rating.
To sum it up, GST will lend more credibility to your business and may even enhance your CIBIL score because you will be making timely repayment of credit to keep your records straight. On your part, you need to ensure that your personal credit repayment track record remains immaculate as it will also be taken into consideration while assessing your credit worthiness. Paying your outstanding amount in full on your credit cards and maintaining basic financial discipline is way to ensure that your credit score remains high.