The Goods and Services Tax (GST) is the hottest piece of news in our country now. Every sector of the industry and country is trying to decipher its impact.
While the Government of India is touting GST to be the best positive reform with taxation, the common population has mixed feelings about it. What about you? What do you feel GST is? A positive change or a negative one?
The answer is a relative one. While GST has reduced, expenses incurred on certain segments, it has increased your expenses on others. Do you know how this tax impacts your finances? You might not know. Even with this implementation, you might feel lost tracking the effects of this tax has on your finances.
What is GST?
It is a unified tax system that aims at removing other types of taxes prevalent in India. The implementation of GST is across all sectors in 5 brackets: 0%, 5%, 12%, 18% and 28%.
Let us understand how this tax impacts your finances.
Banking Services
Looking for a loan, transfer funds or any other services from banks and Non-Banking Financial Companies (NBFCs)? Be prepared to pay a higher charge. Against the service tax of 15% on financial services transactions, the new GST regime taxes such services at 18%. So, financial services transactions have become dearer.
Mutual Funds
Like banking services, mutual fund transactions are set to become dearer. Earlier, the total expenses ratio for mutual funds was in the range of 1.25% to 2.75%. With the implementation of GST, the total expense ratio has increased by 4 to 5 basis points. Even for mutual fund distributors earning more than Rs.20 lakhs, goods service tax has raised the tax payable from 15% to 18%.
Insurance
GST has increased the financial service transaction tax to 18% (earlier a 15% service tax was prevalent). The effects of this have reached the insurance sector as it is a component of the financial sector. Earlier, the service tax was different for different plans. Even after goods service tax, there are different taxes for different plans. In endowment plans, the earlier 3.75% increased to 4.5% in the first policy year. For ULIPs, the rise is from 3.5% to 4.5%. With increased tax rates for ULIPs, the charges have become higher. Higher charged would put a dent on the invested premiums and returns will suffer by a margin. Health and auto insurance plans stand at the 18% tax bracket against the earlier 15%.
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Household Expenses
When it comes to articles of daily use, GST affects different things differently. Food products have 0% to 5% tax. Toiletries have 18% tax. Milk, fruits and vegetables, flour, pulses, bread, etc. have no GST impact. Curd or paneer, toiletries, medicines, etc. have become cheaper. Packaged food like bhujia, chaklis, chips, etc. have become more expensive.
Automobile Sector
GST brings good news for the automobile sector. Since it would end other taxes, car manufacturing would become cheaper. SUVs, hatchbacks and electric vehicles will see a reduction in prices. Hybrid cars would be made more expensive. In the case of old cars, it increases the price of used cars. Looking to buy a used car? Be prepared to shell out more.
Tax Filing and Returns
The GST implementation makes many changes across all sectors. Many traders are still trying to understand the new format of recording this tax and filing their taxes. As individuals, there would be no change in filing taxes under the new GST regime.
A new tax system brings with it many questions, confusions and protests. It has seen its share. It has affected various financial sectors. You should be aware of the changes in store for you. Understand the impact of GST on your normal financial planning process. Build your portfolio as per these changes. After all, a sound financial portfolio should reflect the new and upcoming changes.