How to be prepared post GST?

How to be prepared post GST?

Goods and Services Tax or GST has finally come into effect. GST is based on the premise of one nation, one tax. GST has replaced a lot of indirect taxes such as VAT, Service Tax, Octroi, etc., thereby simplifying tax proceedings. GST will affect the prices of goods and services; some goods and services become cheaper while others become marginally more expensive. This will definitely have an effect on personal finance. Here are the changes that you will feel, pertaining to the most important aspects of personal finance:


Banking services: 

Applying for loans with banks will now become costlier, because the rate of taxation on processing fees under GST will go to 18%. Previously, service tax had to be paid on the loan processing fee charged by the banks, which was at 15%. Thus, applying for home loans, car loans, gold loans, personal loans, etc. will become marginally costlier.

Bank customers will also have to shell out more cash for other services offered by the banks. Bank services such as online banking, payment to merchants via payment gateways, cash deposits, demand drafts, request for cheque book, etc. will become costlier by 3%.


Credit cards: 

Credit cards are very beneficial, if used in the correct manner. Interest paid on credit card EMIs and processing fee will be taxed at 18% under GST. This means that EMIs and credit card processing fee will become costlier. Always look for schemes where zero processing fee is charged, to save some money.


Impact on investments:

GST imposes a flat rate of 18% for all financial services. Let us take a look at implications for various kinds of investments:

  1. Mutual funds: Mutual funds will become more expensive in the sense that the expense ratio will increase by 3%, up from the earlier tax rate of 15%. This is just one implication on mutual funds. The other aspect comes into play when exit load is concerned. As a rule, exit loads are reinvested in the mutual fund to benefit long term investors. Exit load was charged previously at 15%, and will be charged at 18% now. This difference of 3% will be a burden on the investor.
  1. Insurance: Insurance premiums had a service tax component earlier. Now, GST has replaced that. Under GST, all kinds of insurance premiums will get costlier. Previously, term insurance, ULIPs, automobile insurance, health insurance, etc., were taxed at 15%. Under GST, this rate will go up to 18%. For endowment policies, the rate of taxation was 3.75% in the first year and 1.88% every subsequent year. Under GST, the rate will increase to 4.5% and 2.25% respectively.
  1. Real estate: Previously, service tax was charged for construction of houses. For a house constructed within Rs. 1 crore, and having area less than 2000 sq. ft., tax was charged at the rate of 15% on 25% of the cost. This computes to 3.75% of total cost. For houses with area more than 2000 sq. ft., and cost exceeding Rs. 1 crore, tax was charged at 15% on 30% of the total cost. This compute to around 4.5% of total cost. Under GST, all houses will be charged at a flat rate of 12%
  1. Stocks and direct equity: Stocks and direct equity have two tax expenditures. One of them is the service tax paid on brokerage fees, and the other one is the tax paid on annual DEMAT account charges. Tax on both brokerage fees and DEMAT account charges will be charged at a flat rate of 18%, up from 15% as service tax earlier.


The Bottom Line:

GST will have an impact on the prices of a lot of goods and services. Some prices will go down, while others will go up. Plan your investments, card purchases, bank transactions, etc. in such a way that you expend the least amount possible on taxes. This way, you will save tax which can be used for some other purposes.

Plan your investments in such a way that you don’t have to spend most of your time worrying. Take the worry-free road, invest using


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