Thursday 27 July 2017

IMPACT OF GST ON FINANCE



Goods and services tax (GST), as quoted by some financial experts, is the biggest tax reform since independence. GST is going to affect every sector of the economy and hence it becomes really important for an individual to comprehend this profound regime. In our blog GST SIMPLIFIED: DECODING THE BIGGEST TAX REFORM we had tried to expound GST, in this blog we have come up with an in depth analysis of the effect of GST on various components Finance sector.

MUTUAL FUNDS

There are a number of expenses like management fee and application fee that are incurred by asset management companies (AMCs) which affect value of an investment. Generally, such services attract service tax. Now that the tax rate has increased from 15% to 18%, GST is going to have an adverse effect on the mutual funds market as this hike will consequently increase the Net Asset Value (NAV) and other related costs of the mutual funds. Hence it’s certain that GST is going to affect the Mutual funds and its respective distributers. However, the new system exempts the investors earning less than 20 lakhs a year.

Banking

 

Banking is one of the primary sectors of the Indian economy and the new tax regime, i.e. the GST is going to affect the banking sector as well. There are a number of services like ATM transactions (beyond the limit of free transactions), credit cards and loans which erstwhile were levied by a tax rate of around 15% but after the implementation of the GST, they would be taxed at 18%. Besides this, there are some other charges like non-maintenance of minimum monthly average balance and interest on the late payment of credit card dues that are going to be taxed at the rate of 18% instead of the prevailing rate of 15%. This margin of 3% is going to increase the cost of the banks. Besides this, various compliance norms associated with the GST are also going to increase the strenuousness of the banking sector.

Insurance



The taxes levied on the premiums depend upon the type of policies one has subscribed. While the full premium of pure life cover plan is entitled to be charged with the service tax, products like ULIP and endowment plans attract taxes only on the charges levied. Under the new tax regime, the tax levied on term plans has up from 15% to 18%. On ULIPS, a tax of 18% will be levied on the charges levied. For conventional savings and investment plans, the tax will go up from 3.75% to 4.5% of the premium in the first year and from 1.875% to 2.25% of the premium from second and subsequent years.  However, owing the overall of impact of the GST the premiums for the life and general insurance policies are going to increase as soon as the GST is implemented. 
Real Estate

The transactions of this sector is so pricey in nature that even a marginal change in tax rates would have a substantial affect the costs with this sector. However, there is still a lot of ambiguity regarding the effect of GST on the real estate but the experts firmly believe that the think tank behind the implication of GST would plan the tax rates in such a way that the overall impact of the GST on Real estate would be nullified. The reason behind their belief is that the under construction projects are going to attract 12%. The GST committee has also decided that the construction material would be carrying the input tax credit which would again reduce the tax burden of the home buyers. However, how the ready to move-in apartments would be treated under the new GST regime is still in smoke and it’s expected that such holdings would attract the stamp duty and other taxes as per the prevailing rates.
As the new provisions and other legal norms of the goods and Services tax would come in light, the picture would become more clear and we would be able to make our observations more firmly.