Author Archives: Aristotle Consultancy

A quick guide to India GST rates in 2017

The GST Council, the apex decision-making body for the new tax, has fixed the tax framework under the Goods and Services Tax (GST) which is to be rolled out this July 1. Tax rates have been finalised for 1,211 items with a majority of items being kept under the 18 per cent slab.

Here’s a complete list of GST rate card.

Nil rate (0%):
No tax will be imposed on items like fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom etc.

5%:
Items such as fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats will attract tax of 5 percent.

12%:
Frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, and cellphones will be under 12 per cent tax slab.

18%:
Most items are under this tax slab which include flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors.

28%:

Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, and yachts will attract 28 per cent tax – the highest under GST system.

Source – ET Retail

Accounting Basics For Indian Startups: Compliances, Valuation And A Lot More

One must always record daily transactions on a real time basis…

Keeping a real time track of your transactions is a must as the last thing you want is to be stuck backtracking all your transactions that haven’t been recorded. It raises the scope for error and missing out on a single transaction could result in all your efforts going in vain.

Also, when you look at moving to an accounting system, you need to have enough data to feed into the software. There are several cloud based softwares such as Quickbooks that are very economical and have a great, user-friendly interface. If you have your excel sheets ready, a few clicks is all it takes to import them into Quickbooks.

Q: How To Stay Aware Of All The Compliances You Need To Follow?

You must have prior knowledge of all the compliances you need to follow. In order to do this, you must:

Create a due date chart of all the various compliances and follow that chart diligently.
Don’t just follow it on the due date itself, set reminders ten days in advance that let you know that you have a certain compliance coming up.
Implement monthly reporting.

You may not be consider yourself knowledgeable enough to maintain a balance sheet and profit and loss sheet but basic things like a revenue sheet and an expense sheet can definitely be managed without much effort.

Q: How To Find Out About All The Compliances You Need To Adhere To?

Well, in order to achieve this you’ll need to perfectly understand your sector. You need to consider the compliances you need to adhere to, both at the current stage you’re in as well as when you grow and scale further in the future. For example, the best way to break it down is to think that if you were to be the number 1 in your sector, what all compliances would come into play and at what stage.

One trap that you mustn’t get stuck in is, use advice given from a professional who is an uncle or a family member to counter what your accountant is telling you. No doubt, it’s always great to get an opinion from other people. However, the uncle or family member probably won’t have as much exposure or knowledge about the startup ecosystem and hence, their opinions maybe slightly skewed and inaccurate. It’s always advisable to find someone who is aware of your sector/industry.

Q: Why Having A Revenue Model From Day 1 Is Necessary?

There are plenty of startups that have gotten funded but still have a very flawed revenue model. Entrepreneurs must have their revenue model in place from day one so that by the time they start seeking funding, they have nothing to worry about on the finance/accounting front. Things like how the whole cash flow, fund flow and revenue model is going to work must be figured out at the earliest. So often you see a company where the founder has tried to manage the finances on his own as opposed to outsourcing it or seeking help. The latter always has an edge and the option of scalability, unless of course one of the founders is an accounting wiz.

Another thing to keep in mind is that this is India, not Singapore or the US.

In India, just getting your company name registered could take days on end. Even getting your company incorporated involves so many things that you wouldn’t know about unless you’re an expert. Hence, our advice would be that even if you do have the basic knowledge, always get an expert on board. In your startup’s growth cycle, that particular resource may not be with you throughout your journey but getting that updation from that resource will be of great help.

Q: How Accounting Affects Your Valuation?

Valuation is something every founder is obsessed with and rightfully so. Finance and accounting plays a large role here too, as, in order to have a justifiable valuation you need to have your numbers in place or else the investor isn’t even going to entertain you and your projections. The only way you can create a valuation report that an investor won’t shun off is by having all your numbers in place and this entirely depends on your finance/accounts team. In financial terms you have something called a DCF (Discounted Cash Flow) which you use in order to derive an accurate valuation. You must keep updating these numbers real time as going back to create this report at the end of the month could lead to an inaccurate DCF.

Even if you don’t have any knowledge of compliances and of what debit and credit are, having knowledge of those revenue numbers and the model is very important for an entrepreneur. As this will help keep you aware of:

The problem you’re solving with your product and how viable a product it is.
How much money you have in your kitty and how much more is going to come in.
Where are you going to spend your money and how; are you going to register as a proprietor, partnership or Pvt. Ltd. Company.
At what stage will you need more money.
Under the given resources, can you hire a resource to look at your accounts. If not, till what point can you manage on your own.

Hire An Accountant From Day 1!

Which of the two scenarios would you rather be in. One, where you have an accountant from day one, who knows your finances in and out and you approach an investor with him by your side to back you on anything related to your accounts and finances. Or two, you approach an investor without knowing your own numbers.

Do remember, an investor will always keep a keen eye out at how vigilant you are with your utilisation of resources and only your finance and accounting departments will be able to tell you exactly where each of your resources are being utilised. Having this information when approaching an investor is a big plus point!

In the case of a freelancer…

Freelancers usually go to a CA annually with a proper document that includes all their data and transactions for the year. However, one thing to be kept in mind is that an excel sheet made by you will make all the sense in the world to you (obviously) but could be absolute gibberish to somebody else. This may work out for a freelancer but rarely will in the case of a company. Hence, there is a basic level of knowledge that needs to be given to your accounts person so that you both are on the same page. Basically, you must know how to create your data in a way that’s viable for you and your accountant. For example, you have plenty of softwares like Quickbooks, where you literally just have to put in the description for the transaction and the software fills out the rest and creates an excel for you.

We hope these little nuggets of information prove to be useful to you and help you get your accounting and finance systems in order. We have another post in the works, so stay tuned for more.

Source – inc24

EPFO rules changed to enable digital payments

New Delhi: The labour ministry has amended the social security schemes run by the retirement fund body EPFO to enable it to make all payments—pension, provident fund and insurance—to members electronically.

“The labour ministry has amended the schemes run by the EPFO by a notification. This will enable the Employees’ Provident Fund Organisation (EPFO) to make all payments like EPF and pension through digital mode,” an official said. It was provided in the schemes run by the EPFO that the body can make payments to its subscribers through various modes like money order, cheques or electronically.

ALSO READ: How to submit your EPF claim online

“The scheme has been completely amended and the provision of making payments through money order or cheques has been omitted from the schemes. Thus all payments would be made through electronic mode,” the official said. Explaining further, the official said, “Though the EPFO had been making 98% of its payments through electronic mode, there were some field offices which were using other modes like cheque and money orders.” The official also informed that the decision to go 100% digital for payments was taken after some complaints were received for ensuring complete transparency.

The EPFO has over four crore subscribers and receives one crore claims every year including that of EPF withdrawal, pension fixation and insurance claims.

Source – ETRetail

The Good, Bad, And Ugly Of GST – An Ecommerce Perspective

This could be purely coincidental. But the Goods and Services Tax (GST) in India was introduced as the 101st amendment to the Constitution. That’s the best Shagun and an auspicious number in itself to make sure it has a successful rollout, eventually!

For a while now, there has been enough said about the impact of GST on the mushrooming ecommerce industry in India. In some cases, they have begun sounding more like debates around whether GST is a boon or a bane for ecommerce. To my mind, this is a classic case of too much noise being made around a few relatively trivial issues in a much larger scheme of things.

To put this in perspective, the thing that matters most is that, finally, India is on the verge of implementing its largest tax reforms since independence. No other country of similar size and complexity has attempted such a mammoth task before. It unambiguously helps us simplify our tax structures and systems, helps goods move seamlessly across the country, spurs growth and improves ease of doing business.

This is one of the best things that could have happened for ecommerce, particularly B2B ecommerce, in the country. Online platforms and marketplaces will now truly be able to maximise the benefits of distributed inventory, without having to deal with variables such as taxation optimisation. Various states imposing entry taxes and the way-bill documentation complications, which restrict or escalate costs for marketplaces, will soon be a thing of the past.

It is clearly settled that the implementation of GST in India, is by and large, a boon for all businesses! There is no two ways about it.

Having said that, there are some pertinent challenges that need the attention of the GST Council. In context of the ecommerce industry, these challenges are centred around the following:

  • Tax Collection at Source (TCS).
  • Treatment of sales returns, cancellations, replacements, and discounts.
  • Ambiguity around a few specific clauses in the GST draft bill.

How To Combat These Challenges

According to the draft bill, the e-commerce platforms will be liable to collect TCS on the sale of goods and services made by the supplier. It will be the responsibility of e-commerce platform to file monthly and annual returns.

This obviously puts a huge accounting burden on the ecommerce platforms given the fact that there are now lakhs of sellers concluding millions of transactions on these platforms.

To be fair to a fledging yet fast-growing industry like ecommerce, the burden of tax collection should not be put on the platform. This should remain restricted to the extent of data sharing at seller-level, with the tax authorities, the way it is being done in Delhi and Rajasthan currently. It is a fair ask, since there is no such obligation on any other business model as part of the draft bill.

Due to a fairly high component of COD for most ecommerce platforms, returns and cancellations rate still amount to nearly 20% and cash reconciliations take anywhere between 7-15 days. This is in stark contrast to most other offline business models.

Returns happening in months different from the month of sales booking, replacements being done from different states’ sellers, inter-state cancellations are fairly common scenarios. There is much greater clarity required in the draft GST bill on the treatment of such cases and how it impacts TCS calculations.

Also, the value of goods sold in context of discounted products is still ambiguous. Clearly laid out guidelines for the same are needed before roll-out.

Clearly, there has been an attempt made for the first time by Indian regulation to recognise the emerging tech-based business models ahead of implementation. For instance, there are definitions in place for Operators and Aggregators. But a lot more in-depth work needs to be done to be able to eliminate ambiguity completely.

A lot of issues such as treatment of inter-state stock transfers, point of taxation, place of supply and registration requirements in case of e-commerce platforms remains shrouded in ambiguity.

The last thing that the industry needs is, too much being left to the interpretation of local authorities. That will only end up defeating the whole notion of One Nation, One Tax.

However, these are some relatively minor hurdles that need to be crossed, considering the distance that we have covered. It has taken over 15 years for us to get here, since the Atal Bihari led government set up the Empowered Committee in 2000 to streamline the GST model. There is hope that all valid concerns shall be addressed by the GST council.

In Conclusion

These final hurdles seem minor in contrast to the huge positive productivity impact that we shall see in India’s logistics and warehousing industry, the improvement in ease of doing business in the country and the simplification of taxation for businesses. Most ecommerce companies have their roots in a strong startup culture and realise that complex change is mostly incremental and not necessarily perfect from inception. A less-than-perfect GST can be improved with time and is bound to be better than the complex taxation web that we are currently operating in.

In conclusion, I think the current government has demonstrated its clear intent to take bold decisions and push through reform, in its recent demonetisation move. There is substantial hope that we will see similar intent while implementing GST as well as per timelines, keeping in mind the Good, Bad and Ugly aspects of it.

Source – ETRetail

How banks throw fresh credit lifelines to startups

MUMBAI: Private sector lenders HDFC Bank, Axis, IDFC, Kotak Mahindra and Yes Bank have started extending short term credit to meet working capital needs for Ola, Power2SME, Flipkart, OYO, Zinka, Capital Float, investment banker-turned-entrepreneur Fulguni Nayar-owned Nykaa and many others, throwing a new credit lifeline for startups starved of equity capital, signalling some sort of maturity in the sector.

“There are business opportunities in funding start-ups and new generation companies,” said Sidharth Rath, Group Executive, Corporate Banking, Axis Bank. “We prefer companies with adequate equity funding, which helps them to have enough liquidity and aids in debt servicing. It has been satisfactory so far.

“They will grow bigger in future, and some of them will turn out to be unicorns. We too would have higher share of businesses as we are identifying them early,” he said. Axis Bank funds them mostly through letter of credit, bank credit guarantee, bill discounting offering credit support in transaction banking.

The average size varies in the wide range between Rs 15 crore and Rs 10 lakh with maturities from one month to two years. Banks price such loans after adding a premium over their respective lending rates based on marginal costs of funds, known as MCLR in market parlance. This could be about 200-400 basis points over the benchmark rates adding up to about 12-13%.

“Banks should fund working capital for start-ups and new generation companies. We have started funding the likes of Ola, OYO, Rivigo, which are all funded by well-known equity funds,” a senior executive from one of the top three private banks told ET.

Global private equity firm Warburg Pincus backs Rivigo, a logistic startup while Singapore sovereign fund GIC and Japan-based internet company SoftBank part-own taxi aggregator Ola.

Loans are collateralised either through assets or book debt (in the form of equity capital). For a logistic startup plying trucks daily would be assets. In some cases, they may be in unsecured form and equity fund funding the startup sets the benchmark for the lender.

“We got a credit line of INR 25 crores from Axis Bank in December 2016,” said R Narayan, founder and CEO of Power2SME, which is financially backed by Power2SME and marquee investors include Nandan Nilekani. “We also have a SME Financing Program sanction from Axis Bank for Power2Sme customers for INR 50 crores.”

Out of that Rs 25 crores, the venture debt (term loan) was of Rs 15 crore and the rest through cash credit limit.

Puru Vashishtha, co-founder WishFin (formerly Deal4Loans) said startups backed by known institutional investors should get better deals from lenders. Banks are comfortable to extend working capital loans when EBIDTA (Earnings before interest, tax, depreciation and amortization) is visible.

IDFC Bank is providing credit and working capital support to merchants, ecommerce resellers, offline sellers and start-ups through its partnership with fintech companies.

“An increasing number of these merchants are now going digital – in terms of selling and the way they access credit,” said a senior IDFC Bank official. “This means that a bank can write algorithms to underwrite them much better now than in the past.”

“The intent is to expand format credit to an underserved segment and expand geographic reach in locations where the bank does not have a presence,” he said.

Fintech companies like Capital Float, Indifi and Novopay sanction loans live, customers accept the sanction letter on the web browser and enter into a tripartite agreements among the borrower, IDFC Bank and its fintech partner.

This has helped IDFC Bank to skim the market, which is getting larger. For example, small businesses based in Surat, Rajkot, Chandigarh and Bangalore approach Capital Float and Indifi and the bank underwrites these loans. Yes Bank too funds with Rs 1-2 crore ticket size to fintech startups.

Source – ETRetail