Financial Services to Become Costlier under GST
The goods and services tax (GST) is a single rate of indirect tax to be applied in India. It subsumes all the central and state indirect taxes presently levied – including state VAT, local sales tax, octroi, entry tax, purchase tax, luxury tax, tax on lottery, betting and gambling, central sales tax, central excise duties, customs duty, service tax, central surcharges/cess, and entertainment tax – into one single tax rate for the whole country.
Here is a breakdown of the important features: Transaction fees in financial services are expected to be more expensive after the government has put these under the 18 per cent tax bracket in the new GST regime. These services were so far taxed at 15 per cent. The government has categorised 1,211 items under various tax slabs in the new GST regime. The four bands of tax rates have been fixed at 5 percent, 12 percent, 18 percent and 28 percent. As much as 81 per cent of the taxed items under GST will fall in/below 18 per cent slab. Only 19 per cent of goods will attract GST above 18 per cent Financial services are bracketed with A/C hotels that serve liquor, telecom and IT services, branded garments, flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes and notebooks, among others,. Exempted items include unpacked food grains, prasad, gur, milk, eggs, curd, lassi, unpacked paneer, unbranded natural honey, fresh vegetables, unbranded atta, unbranded maida, unbranded besan, common salt, contraceptives, raw jute and raw silk.
GST on Investments
• GST will remove the current multiple tax slabs and consolidate these into a flat rate.
• The new tax regime will thus create a levelplaying field for organised and unorganised trade sectors.
• Public provident funds, bank fixed deposits and other low-risk secure instruments will remain unaffected by GST.
• Premiums for general insurance and life insurance policies will increase post-GST.
• Different banking services, fees and charges will also see an increase in cost due to GST implementation. • The increased service tax on mutual fund investments due to GST will cause mutual funds to become slightly more expensive. • As a multiplier effect, the higher expense ratio will affect the mutual fund returns by way of reduced NAV and/or reduced dividend. The GST rates are indicative till the Bill is passed into an Act of Parliament; state assemblies will also have to pass the Act in their respective states. Hence, amendments moved by the Government of India will have retrospective effect. As of now, the Government of India is likely to roll out GST from 1 July 2017.