Over the last few months, our work with SMEs has helped us understand them better. It is very well established fact that a lot of these SMEs have issues managing cash-flows. With monthly GST outflows, small businesses have come under tremendous stress. Today, most of them are just trying to stay afloat. Not much has changed. They still have to pay their payables on time, they still have to meet their tax obligations on time, they still have to meet their monthly operational expenses on time to run the show. They have to manage all this knowing very well that their receivables are still 90 days away. To make matters worse, now GST has to be paid on a monthly basis irrespective of whether they have received their monies for goods supplied.
At Jit Finco, we decided to do a bit of digging and find out the impact of non-payment of GST on time to the authorities. It is very well known that there is going to be late payment of INR 50/- per day and also an interest @ 18% payable to GST on an annualized basis.
Let us take the case of an MSME that has a tax out flow of INR 200,000/- and is delayed by 25 days on his GST payment.
Amount Payable – INR 200,000
Interest on 200,000 @ 18% for 25 days – INR 2466
Late Fees for 25 days @ INR 50/day – INR 1250
Total to be paid on the 25th day = INR 203,716 (200,000 + 2466 + 1250)
On an annualized basis, the interest components roughly translates to 22.3%.
An interest rate of 22.3% not only makes the SME owner’s business unsustainable it is simply pushing the business owner in to a debt trap. The cost is almost equal to borrowing money from a local money lender and repaying. Considering this, SMEs are well served by paying GST dues on time.
At JiT Finco, we understand the pain an MSME owner needs to go through to pay GST. Our GST BillPay Loan Product can help small businesses pay GST on time. And they pay an interest rate between 11-16% (much less than what they pay to GSTN for the delay).