• NOVEMBER 14, 2017

How The Changes in GST Rates Impact You, The Common Man

Ever since the Government implemented the Goods and Service Tax (GST) regime on July 1, 2017, it has faced a tirade of issues and criticism from various stakeholders.

The new tax regime, also termed as the "Good and Simple" tax by PM Narendra Modi, fell short of the Government promises. The opposition termed it as "Gabbar Singh Tax"

Soon after the GST launch, consumers felt the pinch as the prices of several goods and services went up. As a result, consumer demand fell, leaving businesses in the lurch.

Apart from increased tax rates for certain goods and services, the new system had its own share of teething problems. Business owners found the GST filing process cumbersome and confusing. This further led to business disruption.

Even though the five GST slabs does away with several indirect taxes levied by the Centre, the new tax rates created certain anomalies in product pricing. To correct this, the GST Council made several revisions in GST rates for specific goods and services. But that was not enough. Businesses were hurt with the higher rates.

In the past, efforts were made to revise the tax slabs of certain products and add cess where required to correct anomalies. For example, cess was added to cigarettes and higher segment of cars, as the effective tax rates turned out to be lower than the pre-GST rates.

After repeated demand from trade unions, the Government has now resorted to appeasement politics as many as four months later and just before the Gujarat assembly elections. The GST council reduced the rate of over 200 items, moving more than 80% of the items in the top 28% tax bracket to lower rates.

Further, the GST Council reduced the tax rate on all restaurants to 5% without Input Tax Credit. Five-star hotels will continue to attract the 28% GST rate. Consumer goods such as air-conditioners, refrigerators and washing machines will remain in the highest tax brackets.

The impact...

The biggest revision in the tax slabs this month is despite acknowledging the fact that the lower rates will lead to a revenue loss of Rs 20,000 crore (quoted by Bihar Chief Minister, Sushil Modi).

As a boon to consumers, it will likely make cheaper a whole host of consumer goods, as well as eating out bills. Moving a whole list of items to the lower tax brackets will help in easing inflation. This comes as a sigh of relief for many households, as well as businesses.

Below is a truncated list of items that were shifted to the lower tax slabs in November.

List of items reduced to 18% from 28%*

  • Furniture, fans, lamp and light fitting, sanitary ware, non-electric domestic appliances, glass of all kinds and articles thereof
  • Suitcase, travelling bags, hand bags, wrist watches, clocks, all musical instruments
  • Detergents, washing and cleaning preparations, room deodorisers
  • Liquid wash or cream for skin, shampoos, hair cream, hair dyes, pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations, perfumery, cosmetic or toilet preparations, beauty or make-up preparations, razor and razor blades
  • Chocolates, chewing gum / bubble gum, malt extract and food preparations of flour, groats, meal, starch or malt extract, waffles and wafers coated with chocolate or containing chocolate, cocoa butter, fat, oil powder, extract, essence ad concentrates of coffee, miscellaneous food preparations

List of items reduced to 12% from 18%*

  • Furniture wholly made of bamboo or cane, medicinal grade oxygen, printing ink
  • Hand bags and shopping bags, bags of jute and cotton, hats (knitted or crocheted), spectacle frames
  • Condensed milk, refined sugar and sugar cubes pasta curry paste, mayonnaise and salad dressings, mixed condiments and mixed seasoning diabetic food

List of items reduced to 5% from 18%*

  • Puffed rice chikki, peanut chikki, sesame chikki, revdi, tilrevdi, khaza, kazuali, groundnut sweets gatta, kuliya, flour of potato put up in unit container bearing a brand name, chutney powder

List of items reduced to 5% from 12%*

  • Narrow woven fabric, finished leather, chamois and composition leather, coir cordage and ropes, jute twine, coir products
  • Desiccated coconut, idli, dosa batter.

List of items reduced to Nil from 5%*

  • Guar meal, hop cone, certain dried vegetables, such as sweet potatoes, fish frozen or dried, unworked coconut shell, khandsari sugar

*For a comprehensive list, visit http://www.cbec.gov.in/htdocs-cbec/gst/

Since implementation, the Government revised rates of over 300 items and services. This is a clear indication that GST was launched in a hurried manner and the Government failed to keep its ears to the ground before launching such an important and transformative tax system. In the initial few months itself, representations were made to reduce prices of over a 100 items. The Government chose to react only now.

The change in rates, though welcome; it is step in the right direction in our view. But whether or not it will have a major impact on your daily household budget will depend if the lower rates are passed on to consumers and this rate cut is lasting enough. PersonalFN will not be surprised, if GST rates are revised upwards three months down the line to make up for the loss in revenue and bridge the deficit.

How the GST regime will affect you depends entirely on your spending habits. Some may be benefitting from lower rates and GST is lower or exempt for basic goods and most items of daily needs. However, if you seek added convenience or branded products, you may still have to shell out a higher price.

For most services, you will be unable to escape the higher tax rates. Except for a handful of services categories, there were no revisions made. Thus, mobile bill payments, credit card bill payments, and other utility payments that form a significant part of a household budget, will continue under the existing slabs.

To tide over the current situation, keep a track of your total expenses to check how your budget stands under GST. If your expenses have shot up, take corrective measures immediately. Effectively managing your household budget will not only help steer your finances back on track, but may also save money for emergencies and meet the financial objectives of the family.

You need to plan and prioritise your finances. By managing your spends wisely, and saving small amounts systematically you will be able to live a comfortable life. But remember, along with smart spending, you also need to invest wisely to grow your money.

Remember the famous quote attributed to Ben Franklin - "A penny saved is a penny earned." Well, if you invest the money saved wisely, it will be worth more than the penny earned. Hence, saving and investing is both equally important. Your investments need to be suitably aligned to accomplish your financial goal.

If you seek unbiased investment advice, opt for PersonalFN's Financial Planning Services. Through the Financial Planning Service, create a holistic Financial Plan that takes into account all current financial positions and suggests how to achieve your financial goals.

Once your Financial Plan is created, we can even assist you with the implementation of your plan, and monitor the execution of your investments through our Wealth Planning Service. With this Service, you can choose to receive a Financial Plan for single or multiple financial goals. You can also choose to avail only a review of your investments (mutual fund and insurance portfolio).

Answer this questionnaire to get an idea of where you stand with your own financial health and pinpoint areas where you may need more work.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


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