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How GST will impact your money


Adhil Shetty

On July 1, the Goods & Services Tax will be introduced. This move is expected to impact tax collection and Indian economy at large. The industry is preparing itself with the new compliance framework. But the individual is also going to be impacted by the GST. He too must prepare for some adjustment difficulties.

How we bank, invest, and insure is going to be impacted, though this impact is expected to be minimal. Let’s take a look at how your personal finance will change with GST.

Banking

The arrival of GST will make banking services a little more expensive. There are two aspects to this impact. One – the impact will be limited to banking services were service tax is charged. These may include but not restricted to loan processing fees, fund transfers, ATM transaction charges etc. These would now be taxed at 18 percent, which is higher than the current 15 percent. Services such as opening savings accounts and fixed deposits that don’t currently have a service tax will not be impacted by the GST. Two – the increased tax rate is expected to offset against the input tax credit which banks would be entitled to under the GST laws.

Mutual Funds

Mutual funds impose a Total Expense Ratio (TER) on investors. This typically includes fund management charges and distributor commissions. The TER typically varies between 1.25 percent and 2.75 percent with the arrival of the GST, the TER is set to increase by 4-7 basis points . (One hundred basis points equals one per cent.) Therefore, the impact on investors will be minimal. For example, from a current TER of 1.50 percent, the investor may now have to pay 1.55 percent. Investors need not worry about this marginal increase.

Insurance

At 15 percent, service tax is a sizeable component of insurance premium costs. With the GST, this will go up to 18 percent. But this impact is also expected to be neutralised by the tax credit offset. Because of this, premiums may actually come down. Secondly, service tax today is calculated on insurance products in various ways. The arrival of the final rules will make the situation clearer.

Gold

The precious metal is not left outside the ambit of GST. Although the tax structure under the GST is yet to be confirmed and might change with further contemplation of the government, at present the impact of is seen to clearly falling on the buyers. The jewellery prices are to go up and the end customers are to bear the brunt of it. The jewellers can adjust the tax with the input credit. Consumers on selling the gold back to the jewellers would not be able to regain the additional cost borne at the time of purchase.


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