GST Impact on Your Financial Planning

If you’ll have a second look at the topic of this article, a question may arise in your mind—Is it possible for the GST to affect your financial planning and investments? While GST is the tax on goods and services, you are the end-consumer who uses both goods and services. Note that GST has numerous implications, both direct and indirect. And what’s important for you is to understand how GST will affect your financial planning and cash flow.

Goods and Services Tax or GST is the single tax applicable on the supply of goods and services in India. It is an indirect tax aimed at abolishing the multiple tax slabs prevailing in the country and consolidating everything into a flat rate. However, GST has much ground to cover before we can see its impact.

GST has been in force for more than five years. The impact of GST on the Indian economy and businesses has been multifarious. The impact of GST has been experienced by different sectors in differing periods. Let us see how the unified tax regime has impacted households in the last few years below.

If you manage the finances at your home, you’d know that the biggest chunk of a monthly household budget goes into buying daily use products like household products, food items, personal care products and miscellaneous items like accessories,  and repairs, bags and more.

While the cost of many of these products has reduced after the implementation of GST, the cost has increased as well for some products. For example, things like electronic appliances have become more expensive.

While GST may have positively impacted the cost of most daily use products, the same is not true for services you use. Most services like telecom and financial services have become expensive  due to GST as the service tax has been increased from 15% to 18%.

To reduce the impact of GST on the common man, the government has given exemptions to some goods and services like unprocessed milk, vegetables, unprocessed cereals, fish, meat, ,. While medicines are taxed under 5%, 12%, and 18% GST tax brackets, certain healthcare services like ambulance Services etc are exempted from GST.

The indirect tax imposed on equity and debt related transactions is increased by nearly 300 basis points under the GST regime. The 15% service tax has been increased to 18%. This increases the cost of transacting in mutual funds, equities and portfolio management schemes..

Let us look at the impact of GST on different investments below:

Previously, you were charged various taxes like VAT  , service tax and other charges on the purchase of an under-construction property. However, under the GST regime, a tax rate of 5% is applicable on real estate buys, making your purchase a little cheaper. However, the purchase of a ready-to-move apartment with a completion certificate has been kept out of the GST structure.

Gold, diamonds and precious stones attract a 3% GST as opposed to the earlier different VAT rates  in different  states, thereby increasing their prices.

Goods and Services Tax also applies to life insurance, general insurances like fire insurance, car insurance, theft insurance etc unless otherwise exempted by the law. Now, you are required to pay 18% GST on insurance premiums as compared to the previous rate of 15%.

Business loans have become a little expensive as well with the introduction of GST. Before, business loans attracted a 15% service tax, which has been increased to 18% now. While there is no GST on business loan interest rates, there has been an increase in processing fees making availing of business loans a bit expensive..

The expenses incurred by Asset Management Companies (AMCs) that affect the scheme’s Net Asset Value (NAV) attracted service tax that was charged at the rate of 15%. Post GST implementation the service charges have hiked by 3 per cent, increasing the expense ratio of mutual fund houses across the country to 18%.

So, how can GST affect your cash flow? The GST is favouring equity and mutual fund investments and favouring financial assets over real assets. You can tweak your budget to do more savings and allocate a part of it into financial assets. This can have important long-term implications for your financial plan.

Disclaimer

This blog has been prepared to provide the readers with general information and basic understanding of impact of GST. The Income tax definitions and rules keep on changing, so it is suggested that to avoid any doubt, the reader should cross-check all the facts and contents of the material.

Before taking any decisions, please consult your tax advisors.