The Impact of GST On Banking transactions, Insurance, and Investments

Jul 11, 2017

Goods and Service Tax (GST) is the hottest topic of the season, isn't it?

If you look around in newspapers, TV channels, hoardings by the road, on buses, trains there's so much information about it.

GST seminar, GST software, GST tax consultants, GST triggered sale, etc. It's all about GST...

Dear reader, are you worried about rising prices?

Wouldn't you want to know how GST is going to impact your financial transactions?

In this article, we take an incisive look at how GST will affect your financial wellbeing, while managing your investments and savings.

Presently, most of the banks and financial institutions have proactively communicated the revised service tax structure to their customers via e-mails or text messages. So, under the new tax regime, the service tax rate on almost all banking, insurance and capital market transactions will be 18% as against the 15% charged earlier.

And that's just the beginning... here are the details:

Impact on mutual fund investing

Mutual fund investors will also have to bear a greater cost. With the rise in the service tax, the total expense ratio of mutual fund might be a tad higher but within the specified limits set by the regulator. Further, fund houses will deduct GST from the commission paid to the distributors who do not have GST registration.

Additionally, the mutual fund distributors and independent financial advisors will have to enroll for GST. However, advisors who do not earn more than Rs 20 lakh commission will be exempt from GST. Thus, the effective cost of advice rendered by the investment adviser / financial planner / financial guardian may escalate.

However, the change in tax structure does not affect the fundamental attributes or investment objective of a mutual fund scheme in any way. It is advisable to remain calm and refrain from making any hasty decisions for the time being. Be wise and consult with a Certified Financial Guardian or your investment adviser to make prudent investment decisions.

Brokerage

While buying shares, the brokerage post-GST will also be greater as against earlier. The brokerage component on which service tax is calculated is a very small proportion of the overall transaction, especially if you transact through a discount broker. Hence, this could be slightly dearer for retail investors. With the higher GST rate of 18%, the cost of holding securities in a demat account will increase too.

ATM transactions

All your ATM transactions, beyond the free limit will cost you 3% more now. For example, the many banks under the old tax regime charged you a service charge + 15% service tax for each transaction beyond the four free transactions. Now, for every withdrawal beyond the free limit you will have to pay 18% GST on the service charge.

Loan processing fee

Loan processing fees, too, will go up due to GST. Each category of loan has a different cost structure. For instance, there is a service tax levied on processing fee and loan pre-payment fee for personal loans. The processing fee charged is approximately 1% - 2% of the loan amount plus the service tax.

So, for example, if a loan amount of Rs 5,00,000 attracts a processing fee in the range of Rs 5,000 - 10, 000, the service tax equates to Rs 750 - 1,500. But under GST, your cost will go upto Rs 900 - 1,800; a sum total of around Rs 5,900 -11,800 (processing fee + 18% GST).

Insurance premiums

Paying insurance premiums will prove to be costly. Your general insurance, life insurance, and Mediclaim premiums will hike up due to GST. We have highlighted some of the insurance products below.

Other banking services

Similarly, other banking services such as NEFT / RTGS / IMPS, debit card, credit card, e-wallets, cheque book service, loan processing fees etc. will be dearer now.

To sum-up...

There is an increase in the cost of compliance for all banks, brokerage houses, insurance companies, and mutual fund houses to register all their branches under each state respectively. Along with this, each of these branches will now have to file and pay their taxes independently, unlike earlier where it was all accumulated at and submitted by the head branch office. This marginal rise in tax rates should not be the deciding factor for any financial decisions for the time being. Just remember to keep your financial health in the pink and remain focused on your financial goals.

Disclaimer:

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