GST has affected personal finances, especially financial services since GST on banking, insurance, and investment has increased the tax rate from 15% to 18%.
Impact of GST
GST has affected various sectors as discussed below :
- GST and Insurance
Applicability of service tax in payment is totally different on life assurance products like insurance plans such as term insurance plans, unit-linked insurance plans, and endowment plans. The service tax is applicable on the risk of premium and not on the savings.
To assess the GST, services should be considered on the following basis:
1) The gross premium after deducting investment or saving of policyholder.
2) 10% of the only premium charged on annual policies.
3) GST is applicable on 25% of the premium quantity within the 1st year and also the second year 12.5% of the premium will be considered for charging GST.
4) In the case of term insurance plan, the GST is applicable to the entire premium paid towards risk cover.
The outcome of GST will increase in the premium value of term and endowment plans. The policyholder can get an advantage in case the insurance company is allowed to input tax credit.
The impact of GST is nominal but the policyholders are bearing the additional cost.
2) GST and Real Estate
The real estate sector is updated with a 12% GST rate instead of several state and central taxes. Moreover, it includes the worth of land together with full input tax credits. There are other factors also which determine whether GST has a favorable or adverse effect on real estate. These factors include abatement rules along with tax credit facility as offered to the developers
3) GST on Banking
GST has to lead to an increase in the service charges by the bank on all transactions by customers. Earlier used to be charged as a 15% tax, the banking transaction now carry18% GST for every transaction. This includes GST on cash withdrawals after exceeding a fixed number of attempts.
4) GST and Mutual Funds
The mutual fund’s total expense ratio (TER) now carries a GST of 18 %. This is the cost incurred by the investment company on handling mutual funds and has increased by 3 %. This leads to an impact investor until the AMC is absorbed.
Conclusion
The increase in GST leads to higher taxes and an increase in premium amount as per new guidelines. That too without any further benefit of risk overage.
