Tips To Manage Your Finances Smartly And Calcuate The GST
For every business owner, smart financial planning is the key to entrepreneurial success. Irrespective of whether you are setting up a new business or taking over a family legacy, it is essential to have a clear framework about all your monetary goals.
Here are some tips that business owners must keep in mind while planning their finances.
Manage your debt
Most businesses start on loans, and some of them even take loans for business expansion purposes. While it is fine to take a bank loan, proper debt management is necessary.
Lack of appropriate debt management will lead you to a never-ending cycle wherein you take another loan to pay off your existing loans. There are several professional debt managers, and if needed, you can seek their guidance on this.
If you owe a lot of debt at present, there is no need to panic. The first step is to sit back and chalk out how much you owe. Once that is sorted, start by paying off the most expensive one. Do not make any unnecessary luxurious purchase till you pay off all your loans.
Save on taxes
While this is an efficient way of managing money, you must stay on the right side of the law. Recent amendments to the goods and service tax act have stated that a person who is found to benefit from a fake ITC filing will be subjected to a non-bailable penalty. However, the Income Tax Act has several provisions wherein taxpayers can claim deductions.
For example, Section 80G of ITA allows individuals to claim HRA deductions, but most taxpayers are not aware of the same. Similarly, small businesses whose annual turnover is less than one crore can opt for the Compensation Scheme under GST. Being aware of all the things that you are entitled to will go a long way in maintaining your financial health.
Cover your risks
You need to realize that business assets are vulnerable to risks, and it is essential for you to be prepared for the same. To ensure that your business can stand difficult times, you must find out the types of insurance that your business needs and make appropriate purchases.
Professional liability insurance, product liability insurance, business interruption insurance, vehicle insurance, property insurance, etc. are some of the options available for you.
Calculate your GST
Every business owner needs to have a clear picture of how GST will be calculated. As of 2020, there are 6 GST rate slabs. The GST Council has stated that grains and cereals will be charged GST at 0%, semi-polished stones will be at 0.25%, household items at 5%, electronics at 12%, things like hair oil at 18% and luxury items at 28%.
Almost any other commodity or service that you can think of will fall into one of the above categories. Find out the slab for all your supplies and sales. Here is the detailed GST calculation for different types of transactions.
In cases where a price inclusive in mentioned in the commodity, a reverse gst calculator needs to be used.
- GST Amount = GST Inclusive Price * GST Rate of Commodity / (GST Rate Percentage +100)
- Original Cost – GST Inclusive Price * 100 / (GST Rate Percentage + 100)
In case of a transaction that happens across multiple states, only IGST comes to the picture. Here, the IGST is computed as below:
- IGST Amount = (Original Cost * GST Rate Percentage) / 100
- Net Price = Original Cost + IGST Amount
In case of a transaction that happens within a state or union territory, the calculation is as follows.
- CGST = Applicable CGST Rate /2
- SGST = Applicable SGST Rate /2
Note that for a Union Territory, you can replace SGST with UTGST in the above equation. Also, for a given commodity, the rate of GST imposed by the centre and the state (CGST and SGST) may or may not be the same.
With proper financial planning and a thorough understanding of the taxes that you pay, it becomes much more comfortable for an individual to steer the business in the path of growth.
With the above tips, you will be able to achieve all of that and more. Do proper research and remain updated on the latest GST news to be assertive regarding your financial well-being.