If you’re an SME researching small business financing options, you may have come across the GST registration requirement lenders have for certain SME loans.
Since a GST registration is a basic eligibility criterion for some small business financing, you may be wondering whether you need a GST registration to get an SME loan from a formal lender, and what happens if you aren’t a GST registered business in need of business financing?
Here are the answers to your questions!
Can I get an SME loan if I am not a GST registered business?
The straightforward answer is YES. You can get small business financing if you’re not a GST registered business if:
- Your goods or services you provide are exempt under GST law.
- Your business does not meet the mandatory GST requirements.
- You don’t meet the minimum annual turnover threshold under GST law.
There are certain types of businesses or sectors where the GST is not applicable, and if your business falls into those categories, you can get an SME loan despite not having the required GST documentation lenders ask for.
What goods are exempt under GST law?
Certain goods are exempt from tax liability under the GST law. These exemptions on specific goods and services are given by the government. Therefore, when you’re trying to determine your tax liability under the GST regime, you need to check for goods that are taxable under GST and those goods that are exempt from this tax.
Certain items in the following groups of goods are exempt under GST:
|Fish, Meat and Fillets||Eggs, Honey and Milk Products|
|Non – Edible Animal Products||Live trees and plants|
|Vegetables||Fruits and dry fruits|
|Tea, coffee, and spices||Edible grains|
|Milling industry products||Oil seeds, fruits, and parts of plants|
|Gum, resins, vegetable SAP and extracts||Vegetable materials and products|
|Sugar, jaggery, honey and bubble gums||Pizza, cake, break, pasta and waffles|
|Tea and coffee extract and essence||Water, mineral and aerated|
|Flours, meals and pellets||Salt and sands|
|Fossil fuels – coal and petroleum||Gases and no-metals|
|Drugs and pharmaceuticals||Fertilizers|
|Essential oils, beauty products||Insecticides, artificial carbon and graphite|
|Polymers, polyethylene, cellulose||Rubber, plates, belt, condensed milk|
|Fuel wood, wood charcoal||Newsprint, uncoated paper & paperboard|
|Printed books, brochures, newspapers||Silk worm cocoon, yarn, waste & woven fabrics|
|Wool materials & waste, animal hairs||Cotton materials, synthetics & woven fabrics|
|Flex raw, vegetable materials & paper yarn||Blankets & bedsheets|
|Artificial flowers, wigs & false beards||Bricks, blocks & ceramics|
|Glasses, mirrors, flasks||Hand tools & cutlery|
|Industrial machinery||Balloons, parachutes & airlift gear|
|Medical, chemical & astronomy||Pencil lighter toiletries|
|Musical instruments||Machinery lab chemicals drugs medicines|
Which businesses need to mandatorily register under GST?
The following entities must register under GST:
- E-commerce aggregators
- Individual suppliers on e-commerce aggregators
- Individuals who pay tax as per the reverse charge mechanism
- Agents of input service distributors and suppliers
- Non-Resident individuals who pay tax in India
- Businesses that have an annual turnover more than the threshold limit
- Individuals who registered before the GST law was introduced
What are the minimum annual turnover thresholds to register for GST?
Updated GST threshold limits came into effect on April 1, 2019. The threshold for GST registration is based on your Annual Aggregate Turnover.
|Annual Aggregate Turnover||Category||Purpose|
|More than Rs. 40L||Normal state||Sale of goods|
|More than Rs. 20L||Special state*||Sale of goods|
|More than Rs. 20L||Normal state||Providing services|
|More than Rs. 10L||Special state*||Providing services|
*The Special State Category refers to states in the North-East of India and hilly states.
The following states are included in the Special State Category under the GST law:
- Arunachal Pradesh
- Himachal Pradesh
- Jammu & Kashmir
Why do I need to submit GST documents when I apply for small business financing?
If your business is required to have a GST registration and you have all your GST paperwork ready for the lenders, it indicates to them that you are a responsible business owner. They use this as a proxy for your creditworthiness which, when combined with other factors like your financial history, bureau report, credit score, sector, etc., helps lenders decide whether they should lend to you or not.
When you apply for small business financing using CreditEnable’s technology platform, our technology assesses your business and financial needs before matching you with one of our 25+ lender partners. Based on your business sector and your business type, we advise you on what documentation the lender will require to approve their SME loan application.
You are eligible for small business financing from a lender without GST documentation if your business meets any of the three criteria:
- You only deal in goods and services that are exempt from GST.
- Your business doesn’t need to register according to GST law.
- Your small business does not meet the minimum annual threshold to register for GST
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