The country switched to GST on 1st July 2017. And in the financial space, this is currently the single biggest topic of discussion today.
GST is replacing several taxes. But it will continue to have an effect in our daily lives. So let’s see how GST impact various financial products.
Broadly speaking, the service tax rate on almost all banking, insurance and capital market transactions has increased to 18% from the earlier 15%.
Impact on Mutual Funds
As there is a rise in tax rate, the total expense ratio of the mutual fund would go up slightly. Expense ratio is the annual fee that mutual fund companies collect from investors and its expressed as a percentage of assets and deducted each fiscal year (for costs that include but at not limited to fund management fees, administrative fees, operating costs, etc.)
But the total expense ratio will remain within the prudential expense limits specified by SEBI.
Impact on Stock Trading
When you buy stocks, you need to pay brokerage. Now the taxes on brokerage will go up after GST implementation. But since the brokerage component itself is a very small portion of the overall transaction value, it won’t hurt the retail investors much.
Impact on Insurance Premiums
The overall premiums for all kinds of insurances would go up as tax rates have increased from 15% to 18% after GST.
Impact on Loans
When you borrow money in form of personal loan, housing loan or business loans from the lenders, there is a loan processing fees. Generally around 1-2% of the loan amount plus taxes. Since taxes have gone up, the processing fee (inclusive of revised taxes) would go up too.
So let’s say you took a loan of Rs 10 lac for which the processing fee was 1%, i.e. Rs 10,000. Now this processing fee earlier would have attracted a tax of 15%, i.e. Rs 1500. But now, this has gone up to 18%, i.e. Rs 1800. As you can see, the impact of GST for retail customers is marginal at best. So slight increase in tax rates shouldn’t be a deciding factor for your financial decisions.