How Modi Government GST Will Affect Your Daily Life?
The Goods and Services Tax popularly called GST will be launched across India on the midnight of June 30th. GST is applicable on the supply of goods and services and may replace 15 Indirect Taxes. GST is a single indirect tax for the whole Nation. GST would control inflation and spur growth in the economy. The economy has been stagnant in the last few months and GST might just be the tonic it needs. India under GST has a four-tier tax structure of 5%, 12%, 18% and 28%. Most of the products and services are slotted under these slabs.
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How Modi Government’s GST Affects Your Daily Life?
1. Impact of GST on term life insurance premiums
This question must be running through your mind. Should you avail a term life insurance plan before July 1st? Currently you are taxed 15% on your insurance premium which includes Swachh Bharat Cess and Krishi Kalyan Cess. From July 1st, insurance premiums will fall in the 18% GST slab which is a uniform rate across the financial services sector. Insurance premiums will be hiked by 3% from July 1st 2017.
In an insurance plan service tax is charged only on the risk element. Term life insurance policy is a pure risk plan and service tax is charged on the entire premium. So your term life insurance plan is definitely getting costly after GST. So will your health insurance plan and car insurance plan.
If you are paying your term life insurance premium on a yearly basis, then expect a premium hike of Rs 200–400 after GST. Should you avail a term life insurance plan before July 1st? If you are planning to avail a term life insurance plan in the next few months and want to pay the entire premium at once (the whole premium in one go), then you better avail this plan before July 1st 2017. Otherwise, you will have to pay a higher premium as 3% additional tax will be added.
2. Impact of GST on mutual funds
If you are an investor in mutual funds, you must be wondering if GST will affect your mutual fund investments. Yes, it will. Fortunately, the impact will be marginal.
Mutual funds fall in the 18% GST slab. This is an increase in service tax from 15% to 18% making mutual fund investments a little more expensive.
Every mutual fund mentions its total expense ratio which is the sum of all expenses the mutual fund incurs towards fund management, brokerage, auditing, operational requirement and so on. The expense ratio for most mutual funds is around 1.25% and 2.75%. After GST you can expect the expense ratio to go up by 0.05–0.07%. If your mutual fund has a total expense ratio of 2.10%, it may go up to 2.15%. If you are planning to invest in mutual funds after July 1st do not worry. This is just a marginal increase which should not bother you. After all mutual funds are a long term investment.
3. Impact of GST on your hotel bill
If you enjoy travelling and love to dine and stay in mid-market and luxury restaurants, there’s good news. After GST, hotel room rates in such restaurants could come down. An 18% GST will be charged on hotel rooms with a tariff between INR 2500 to INR 7500. Currently on hotel room tariffs between INR 2500 to INR 7500, a tax of around 21% is charged. The 3% tax discount will be passed on to you and other customers.
The GST on five-star restaurants has been reduced from 28% to 18%. If you love to dine in five-star restaurants this is good news indeed. This is at par with standalone air-conditioned restaurants. For room rates below INR 1,000 there will be no tax, while for those between INR 1000 and INR 2,500, GST will be 12%. Hotel tariffs above Rs 7,500 would attract GST rate of 28%. The hotel industry seems happy with these rates and is looking forward to a prosperous time after GST.
GST is of great benefit to the common man. A single tax for the whole Nation, will remove a number of hassles you face in daily life. Get ready for a single indirect tax. Be Wise, Get Rich.