With Goods and Services Tax (GST) we have now entered into one of the most historic years. The pain of multiple taxations is passe now. Hon. Prime Minister in his speech has named this new change as Gud and Simple Tax. Right so if we consider the uniformity of taxation. Any change in Taxation will bring change in your finances.
Much like any other aspect your investments or insurance too gets impacted whenever there are changes in tax laws. GST too will change different investments marginally or higher whatever may be. As an investor, it’s always advised that you should keep yourself aware what’s happening with your investments. Then only you will be able to analyze whether your investments are meeting your objectives.
Here we look at different investments and impact of GST on it:
In your bank, you have to pay service tax at many instants. Not maintaining your balance there is a penalty charge or ATM transaction fee there is a charge on which service tax is applicable. Then there is locker rent, quarterly charges for SMS services, the issue of cheque books/drafts etc. where a fee is charged and so service tax was applicable. In all such charges, GST is applicable now. Similarly, there might be other banking services where this change will apply. Now wherever you are paying these cost the higher fee of 18% will apply now. It’s interesting to see how banking services evolve since already higher charges by banking is a point of debate. But as a consumer, you know very well some of these you may be paying while some can be avoided by managing your banking services better.
Insurance too will get impacted though differently. Let’s understand how. There are ULIP and Traditional policies across the insurance industry. Among traditional pure term plan and endowment plans are present. When you pay the premium of term plan then you were charged a service tax on the entire premium. Contrary to this a ULIP plan the service tax was being applied on the charges of the product and not on the entire premium. The service tax in both these products will get replaced by GST which is at 18%. What will this change? Effectively your insurance premium in term plan will enhance a bit – the tax will go up from 15% to 18%. Contrary to this in ULIPs, the tax on charges will go up so effectively charges such as asset management and administration will go up marginally. Overall you will have to shell out a bit more than what you were paying before.
There are charges in mutual funds too and on these charges service tax is levied. All these charges together constitute the expense ratio of a scheme. Here also service tax is replaced by GST which is going to be higher at 18%. Though marginally, the expense ratio of schemes will increase. In mutual fund expense ratio play a very important role in delivering you returns. Higher the expense ratio lower the returns. Though with regular mandate there is a maximum cap for mutual funds to charge expense ratio and so any enhancement will be within this limit.
There has been much of hue and cry on gold. For gold buyers, there will be a marginal increase in prices and GST has to get the credit for it. Till now it was Excise duty and VAT which was 2%. This is increased to 3% now with GST in place. So a 1% increase in the gold prices may deter few investors but not all of them.
Cost Of Advice
What you pay to your advisor is going to increase. Many advisors who were exempted from service tax due to the income threshold of Rs 10 lakh are getting covered in GST. Advisors, even in the absence of physical presence if providing services outside his/her state will have to charge tax under GST rules from the clients. For investors, this means the cost of service is going to increase a bit and so they should be ready to pay GST over their fees to the advisors.
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