GST rate all set to call the shots in personal finance segment

On 1st July 2017, the country will stand up and welcome a new tax culture that will impact the economy as a whole. Seen as the biggest indirect tax reform since independence, GST is expected to promote business on a wide scale by replacing the multiple tax regime with a single levy. While the government has exempted some items from the tax liability, it has fixed GST tax rate of 5%, 12%, 18% and 28% which are going to be levied on various goods and services from 1st July onward. Well, all these taxes would have to be paid by the business enterprises. But, as it happens in business, the rise in cost usually gets transferred to the end consumers in the form of increased purchase price. And it would be no different post the implementation of GST.

Personal finance is one segment that connects the masses in the country. Most of us would have a bank account with some may be having an insurance policy in addition. At the same time, you could be looking for a loan to address your imminent need. So, if you are searching for information which could explain the impact of GST on personal finance segment, this is the article you must read and share.

Loans to Get Expensive

Many have their eyes on the interest rate while shopping for a loan. But they may not pay much attention to other payments like processing fee. Although it’s a one-time payment, but you should consider the same while searching and comparing the loan offers of various lenders. The processing fee is levied on almost every type of loan, be it a personal loan, home loan, car loan or others. In the case of a personal loan, processing fee is charged at 1%-2.5% of the loan amount plus a service tax of 15%. But post the implementation of GST tax rate, a standard 18% would be levied in place of the existing service tax. Suppose the lender charges processing fee at 2% of the loan amount plus service tax. If someone had applied for a loan of ₹8 lakhs before GST implementation date, he/she would have paid a processing fee of ₹16,000. Adding 15% service tax, the fee would have risen by ₹2,400 to ₹18,400. But after GST, the processing fee would jump to ₹18,880 with 18% standard rate. Similarly, other loans are going to be impacted where service tax was applicable before GST.

Mutual Fund Expense Ratio to Rise

If you have made an entry into the mutual fund industry, you would be well aware of the phenomenon, ‘expense ratio’. Well, it denotes the cost of running and managing the mutual fund, and is recovered from the investors. The cost includes marketing fees, management fees, custodian fees, registrar fees, distributor commission, among others. The expense ratio, which is a certain percentage of the average net asset value (NAV) of a fund, can be anywhere between 1%-2.5% across the asset management companies (AMCs) in India. In addition, the fund houses also charge a service tax at 15%. With the implementation of GST, the service tax would zoom to 18%, thereby raising the overall expense ratio of the fund. It will ultimately impact the investors as their return would be deducted more with the rise in expense ratio due to 18% GST tax rate.

Insurance Premium to Increase

When you buy a life insurance, health insurance, auto insurance or any other policy, a certain premium amount gets deducted monthly, quarterly or annually from your account. The premium also includes service tax. Suppose the premium amount is ₹6,000. In that case, a service tax at 15% comes out to be ₹900. In this way, the total premium to be paid by the policyholder is ₹6,900. But with GST, the premium would rise to ₹7,080 (6,000+18%of 6,000).

Transaction Cost of Stock Investors to Rise

Even though security transaction tax (STT) and stamp duty are exempted from GST, the standard 18% rate will inflate the transaction cost of the investors as a lower 15% service tax would no longer be existent from July 1, 2017.

So, you must have got an idea of the savings you need to do on a daily basis so that the increase in the costs of availing the financial services won’t hit your wallet hard once GST tax rate list is a reality. Those who live a luxurious life may not find it hard to bear the rise in expenses. But many consumers on budget would have to rejig their expenditure accordingly in order to avail the services at ease. 

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GST Tax Rate List