The rolling out of Goods and Service Tax (GST) in the country has impacted various aspects of businesses. Here, you will get to know what effects a GST can create on the working capital (WC). However, before dealing with those effects, get an overview of GST and WC.
What is working capital and why is it important?
WC is the fund available with the company for meeting daily operations. It is essential to have a healthy WC for a business. In its absence, a company may face hurdle in everyday operations.
So, to ensure a business maintains a smooth WC flow, you have an option to borrow working capital finance from top lending institutions. For example – you can avail high amount of Business Loans from Bajaj Finserv to fund the company’s investments.
What is GST?
The Goods and Services Tax is a new indirect tax regime. Under this, taxes are levied on manufacture, production and sale of goods and services.
How can GST affect your business’s WC?
A business’s working capital is an essential aspect affected by the rollout of GST. The indirect tax has various implications on WC.
I. Enables free movement of goods between states
In the old rule, companies had to maintain different warehouses if they operated in more than one city. It was done to avoid payment of entry taxes for every inter-state transport. However, it required more cash investments in inventory and warehouse.
With the introduction of GST, movement of goods from one state to another has become convenient. It is because one does not need to pay on every inter-state transport. Thus, it affects in two ways:
● Saves on extra taxes.
● Decreases WC investment with fewer warehouses across the country.
II. Change in business expenses
The business expenses of a company depend on the arena of operation and related costs. For example, if you import raw material for manufacturing the end products, you will have to pay a GST of 18%, which is the standard rate instead of the older rate of 15%.
Payment of GST for procuring raw material affects small and medium businesses considerably as it puts a charge on the WC. Therefore, you need to keep larger WC invested at all times.
So, while calculating working capital finance, take into account the GST factor. You may use the GST calculator for this purpose.
III. Timeline for payment of tax
A business can claim input tax credit on the goods it sells. However, GST is levied on the transfer of stock. It cannot claim the credit unless it sells the stock.
With high GST rates of 18% on certain goods and services, it means you need to keep significant WC invested in your stock until the sale is complete. It creates a time lag. As a result, WC requirement increases.
To know the investment required for current assets, you can calculate the tax amount on the GST calculator available online.
IV. The high price of services
Implementation of GST on services with 18% tax rate instead of older 15% means operating in the service sector becomes expensive. Businesses selling services will have to pay higher taxes every month instead of quarterly as earlier. So, it is imperative to keep regular cash flow as a part of WC. As a result, the investment of working capital finance will increase.
However, if you do not have enough funds to invest in WC, don’t worry. Financial institutions like Bajaj Finserv bring you pre-approved offers on business loans. Here, you can borrow the necessary funds through a quick and easy process.
So, with GST affecting the WC flow significantly, businesses need to adjust and manage their current assets for an efficient day-to-day operation. Use the online GST calculator for more accuracy.
What is working capital and why is it important?
WC is the fund available with the company for meeting daily operations. It is essential to have a healthy WC for a business. In its absence, a company may face hurdle in everyday operations.
So, to ensure a business maintains a smooth WC flow, you have an option to borrow working capital finance from top lending institutions. For example – you can avail high amount of Business Loans from Bajaj Finserv to fund the company’s investments.
What is GST?
The Goods and Services Tax is a new indirect tax regime. Under this, taxes are levied on manufacture, production and sale of goods and services.
How can GST affect your business’s WC?
A business’s working capital is an essential aspect affected by the rollout of GST. The indirect tax has various implications on WC.
I. Enables free movement of goods between states
In the old rule, companies had to maintain different warehouses if they operated in more than one city. It was done to avoid payment of entry taxes for every inter-state transport. However, it required more cash investments in inventory and warehouse.
With the introduction of GST, movement of goods from one state to another has become convenient. It is because one does not need to pay on every inter-state transport. Thus, it affects in two ways:
● Saves on extra taxes.
● Decreases WC investment with fewer warehouses across the country.
II. Change in business expenses
The business expenses of a company depend on the arena of operation and related costs. For example, if you import raw material for manufacturing the end products, you will have to pay a GST of 18%, which is the standard rate instead of the older rate of 15%.
Payment of GST for procuring raw material affects small and medium businesses considerably as it puts a charge on the WC. Therefore, you need to keep larger WC invested at all times.
So, while calculating working capital finance, take into account the GST factor. You may use the GST calculator for this purpose.
III. Timeline for payment of tax
A business can claim input tax credit on the goods it sells. However, GST is levied on the transfer of stock. It cannot claim the credit unless it sells the stock.
With high GST rates of 18% on certain goods and services, it means you need to keep significant WC invested in your stock until the sale is complete. It creates a time lag. As a result, WC requirement increases.
To know the investment required for current assets, you can calculate the tax amount on the GST calculator available online.
IV. The high price of services
Implementation of GST on services with 18% tax rate instead of older 15% means operating in the service sector becomes expensive. Businesses selling services will have to pay higher taxes every month instead of quarterly as earlier. So, it is imperative to keep regular cash flow as a part of WC. As a result, the investment of working capital finance will increase.
However, if you do not have enough funds to invest in WC, don’t worry. Financial institutions like Bajaj Finserv bring you pre-approved offers on business loans. Here, you can borrow the necessary funds through a quick and easy process.
So, with GST affecting the WC flow significantly, businesses need to adjust and manage their current assets for an efficient day-to-day operation. Use the online GST calculator for more accuracy.
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