How does GST Impact Your Personal Finances

 

How does GST Impact Your Personal Finances?

Impact of GST on your personal finances will be mixed.

For many items, there is a reduction in taxes. This is mainly because government has put up strict anti-profiteering measures & warned businesses of tax raids to make sure the companies pass on the benefits to their consumers.

FOOD ITEMS

Most food items are exempted from GST. They were also not taxable under old regime so prices expect to be largely neutral

Cereals

Fresh fruits & vegetables (Other than frozen or processed)

Meat (Other than in frozen state and put up in unit containers)

Fish (not frozen or processed)

Common salt

There was confusion whether wheat, flour, rice sold in packets would be under high tax. Revenue Secretary has clarified that only those sold under a registered brand name will attract a higher tax of 5%. So, your normal unbranded packets from your local grocery will still be 0 rated.

Impact of processed food will be varied. Items like corn flakes will reduce under GST while pastries and cakes will rise.

HOUSEHOLD ITEMS

Hair oil, soaps, shampoos are expected to get cheaper.

Cost of washing clothes will increase due to increase in rate of detergent and also due to increase in tax on services of laundry places.

Other basic items such as kumkum, alta, puja samagri, bangles (except those made from precious metals) are exempted from GST which will lead to decrease in prices. However, makeup will be more expensive under GST falling under 28%.

OTHER HOUSEHOLD ITEMS & APPLIANCES

Kitchen utensils like stainless steel cooker, pan etc are a little cheaper as they are charged at the rate of 12% under GST compared to the old tax rate of 19.5%

Sanitary items like taps, faucets etc. are costlier under GST as they are also kept under the 28% tax bracket.

Heavy home appliances such as air conditioners, washing machines are more expensive under GST. Their maintenance and service contracts will also be more expensive as services attract 18% GST.

So making small repairs to your home (replacing a tap) & home appliances will be costly under GST

MEDICINES

Human blood and its various components are exempted under GST as well as existing laws so prices will remain neutral

Only chemical contraceptives (hormones based) were earlier exempted. Now condoms and other contraceptives are also exempted under GST.

Impact on life saving drugs including medicines for diabetics are largely neutral which were taxed also around 5% under VAT/excise regime.

Prices of ayurvedic and other alternative medicines will increase as they are taxed under 12% GST.

MOBILE NETWORK, DTH AND OTHER SERVICES

Service industry are now under 18% GST compared to the earlier 15%. So, mobile connections, DTH booking of tickets through agents, apps will increase

Computers are expected to become cheaper.

RESTAURANTS

Dining out will be cheaper in most cases because of decrease in taxes. Earlier tax on restaurants came to an effective rate of 20.5%. This has been reduced for all restaurants to 18% GST, including 5-star restaurants. Even better, non-ac restaurants without alcohol will be even cheaper under 12% tax. Many restaurants have already started giving discounts and happy hour low prices.

So, eating out is definitely easy on your finances in GST.

MOVIEGOERS

Movie tickets will attract GST at 28% and food, drinks at theatres will attract 18%. The effect of GST will be mixed depending on the states. States with high entertainment tax such as Maharashtra, UP, will be benefitted as it will reduce the prices for the end consumers. However, GST will have a negative effect on states which already have a low entertainment tax such as Punjab, Rajasthan.

BANKING, FINANCE & INSURANCE

Ironically, your actual financial transactions will reduce your finances due to the increase of tax on services to 18% (from earlier 15%)

So, your life, health, car insurance premiums will increase. Cost of taking out a loan will also increase due to the service component in loan processing etc.

Banking services charge 15% service tax currently which will increase to 18% under GST. Most banks have applied transaction charges on cash withdrawals from different bank ATMs, cash withdrawals from branch (first 5 for both are free). All these attracted 15% service tax which has increased to 18% under GST regime.

TRAVELLING

Prices of mid-large cars will increase as they will attract 28% GST along with cess. However, prices of small cars will attract 1%-3% cess thus resulting in a decrease in prices. Mid-sized cars, SUVs and luxury cars will have a 15% cess. Motorcycles will attract 3% cess

Travelling by app based cabs like Ola, Uber has become cheaper as the tax has reduced to only 5%. Already, we pay a reduced amount on travelling. Also, all radio-taxi companies have started various discounts and offers keeping in line with the anti-profiteering measures.

TOURISM

Railways tickets will increase slightly due to rates. Economy air prices will fall. However, luxury and business class ticket prices will rise.

Budget hotel rooms below Rs. 1000 per day are exempted from GST. Rooms between 1000-2500 will attract 12% GST. Rooms between 2500-7500 will be taxed under 18%. Rooms above 7500 are taxed at the luxury rate of 28%. Hotel rent will decrease for all rooms except for the high-end luxury ones.

GOLD

Gold, Diamonds, Precious stones will attract 3% GST which will increase prices in most states where the earlier rate came to 2% (1% excise +1% VAT)

HOUSING

Cement prices will increase due to the 28% GST rate, in turn, costs for infrastructure and housing which are highly dependent on cement, will also increase.

Also rent of office buildings will be subject to GST of 18%. However, the rent of residential buildings are exempted from GST.

Exemption list is expected to have around 100 items only as exemptions break the tax chain and create scope for tax evasion. By keeping a small list, it will help to curb tax evasion

Most of the commonly used items (common man items) are under 12% and 18%

Online Shopping is expected to be balanced by lower costs of logistics and smoother inter-state transport because of a uniform tax rate.

FM Arun Jaitley said the main principle behind the rate fixing has been that "tax rate under GST will not go up for any of the commodities. There is no increase. On many commodities, there is a reduction particularly because the cascading effect of tax is gone"

What are the Exemptions under GST?

GST is not imposed on all goods and services.

Certain goods are kept under nil or 0% GST rate to benefit the masses.

Following items are clearly exempted under GST.

Exemptions under GST- Goods

LIST OF SERVICES EXEMPTED UNDER GST

                            EXEMPT

Supply to Canteen Stores Department (CSD) which is owned by Ministry of Defense will enjoy 50% concession on applicable GST. There is no concession on Compensation Cess as such, which is paid on the notified goods or services or both received by them.

Sales by CSD to Unit Run Canteens/final consumer and sales by Unit Run Canteens to final consumer are also exempted from GST.

An entire list of GST rates on goods declared on 18th May 2017 and on 3rd June 2017 is available on CBEC website.

Services at 0% GST are listed as:

1. Services by Government or a local authority excluding the following services:

a) Post office speed post, express parcel post, life insurance, and agency services provided to a person other than government

b) Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport

c) Transport of goods or passengers

d) Any service, other than services covered under clauses (a) to (c) above, provided to business entities

2. RBI

Foreign diplomatic mission located in India

Cultivation of plants and rearing of all animals, except the rearing of horses

Access to a road or a bridge on payment of tall charges

Transmission or distribution of electricity by an electricity transmission or distribution utility

Renting of residence building for use as residence

3. Transportation of Goods:

By road except the services of

goods transportation agency, or

courier agency

By inland waterways

4. Vet Clinic

5. Serulces of an arbitral tribunal to:

Any person (not a business)

A business entity with turnover below GST threshold (Rs. 20 lakhs. Rs 10 Lakhs for special states) in the preceding financial year

6. A partnership firm or an individual advocate (not a senior advocate), giving legal services to

Another partnership firm or an individual advocate providing legal services

Any person (not a business)

7. A business entity with turnover below GST threshold (Rs. 20 lakhs. Rs.10 Lakhs for special states) in the preceding financial year GST does not apply to a senior advocate who provides legal services to:

Any person

A business entity

8. Education (pre-school to high secondary) including:

Transportation of students, teachers and staff

Mid-day meals and other catering

Security and house-keeping services performed in schools

Admission to, or conduct of examination by, such institution up to higher secondary.

9. Performance in folk or classical (1) music, or (II)dance, or (III) theatre, if the con-sideration charged is less than Rs. 1,50,000.

No exemption if the artist is giving services as a brand ambassador

10. Independent journalist, Press Trust of India or United News of India collecting or providing neters

11. Hiring out of

State transport- A vehicle to carry more than 12 passengers (bus)

 Goods transport agency, to transport goods (truck) transportation of goods

12. Transport of passengers by:

Air, embarking from or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra located in West Bengal:

Non AC contract carriage other than radio taxi, for transportation of passengers, excluding tourism,

conducted tour, charter or hire (Kolkata to Joka jeeps)

Non AC horse carriage

13. Health care services by a clinical establishment, a doctor or para-medics

Ambulances

14. New Exemption:

★ Services provided by the (GSTN) to the Government (Centre or State)

15. Services by a person by way of:

Conduct of any religious ceremony.

Renting of precincts of a religious place.

Renting of rooms with charges less than Rs. 1,000 per day.

16. Transport of following goods in goods carriage:

 Agricultural produce

 Goods, where gross amount charged is less than Rs. 1,500

Goods, where gross amount charged for all goods for a single consignee is less than Rs. 750

Milk, salt and food grain, newspapers

Loading unloading, packing, storage or warehousing of rice

17. Admission to:

Circus, dance, or theatrical performance including drama or ballet.

Award function, concert, pageant, musical performance or any sporting event other than a

recognized sporting event.

Recognized sporting event where admission price is less than Rs 250 per person.

There might be other exemptions in the future course, which may get revealed by GST Council later.

Various Analysis and Opinion about GST!

Any disruptive change to the routine of things brings with it a lot of apprehension and uncertainty. Not only it finds a lot of opposition as a result of the challenge to status quo, it also leads to misconception and rumour mongering.

GST has been a path-breaking change in the way India's economy functions and this indirect taxation regime will have far-reaching positive consequences that at times even sound unimaginable. No doubt, the common man finds it difficult to comprehend the changes, but a lot of steps have been taken to clear the air, create awareness and ensure that everyone gets enough time to shift to the new way of working and ultimately reap the benefits.

Even though at the moment there are multiple tax slabs, the ultimate goal is to have "one nation one tax" and a commendable beginning has been made in that direction. It will take for the new system to settle down and show positive concrete results, but before that, a lot of discussion and debate has to take place so as to iron out the initial wrinkles and bring necessary changes.

For this to happen, one has to understand how GST is making an impact on various sectors and it needs to be supported with data rather than hearsay or popular public opinion.

The first step towards this process is to clearly differentiate between two major pillars of the economy: manufacturing, distributing and retailing, and service industry. Both of them attract different GST rates and the entire functioning of the new tax regime will be different in both the cases.

Let's have a bird's eye view of the impact of GST on both these pillars of growth:

GST Impact

Logistics

Real Estate

E-Commerce

Startups

Manufacturing

Services

Banking

Talecon Arine

Job Work

Import/Export

Pharma

Automobile

Textile

Hotels & Restaurant

Trading/FMCG/Retail

GST's impact on Manufacturing. Distributing and Retailing

India needs a strong manufacturing base to grow its GDP in higher digits. However, this sector has been suffering from multiple taxes that caused higher cost of operations, complicated processes and it resulted in lower efficiencies. Also, the complication resulted in many small businesses avoiding the whole tax-paying process and finding loopholes to not pay genuine taxes. With GST in place, the compliance burden of multiple taxes has been cut down, process has been simplified and all those businesses out of the tax bracket have been brought in. This will increase in tax yield, transparency in the operations and will ultimately result in competitiveness and better performance of the sector.

GST's Impact on Service Providers

One of the stark and dark realities of previous tax regime was that out of the 12,76, 861 service tax assessees in the country as on Mar 14, only the top 50 paid more than 50% of the total tax collected. This grim reality showed that the burden was borne by IT Services, telecom services, insurance and banking industry, and the likes. Even though they work in organized manner and were following all the requirements, with GST, they will face lesser workload and will result in even better compliance. Hence, GST should result in improving their performance as well as better tax collections on the back on improved growth in their financials

To further understand the implication of GST on the economy, let's have a look at how it is changing the way various sectors will perform:

1. Logistics: It forms the backbone of the economy and till now it's a fairly fragmented and unorganised sector. With GST, it will be unified and become organised enough to make a substantial impact on the country's economic growth. Movement of goods will be seamless leading to reduction in operating costs, improvement in profits and overall benefit to the end consumer.

2. E-commerce: India is one of the few economies to adapt e-commerce operations on a war-footing GST works to its advantage. However, the only point of contention with e-commerce players is a new mechanism proposed under GST law, which is a Tax Collection at Source (TCS) mechanism. The current rate set for TCS is 1% arid might need a relook in the long run given companies discomfort with it.

3. Pharma: The pharma sector has brought India on forefront of medical tourism while at the same time providing medicines at an economical rate to the poorest of the poor. GST will further enhance the functioning of the sector by providing a level playing field for generic drug makers and simplifying the tax structure.

4. Telecommunications: This is one sector that has grown tremendously over past two decades and has contributed handsomely to overall economic growth. GST has come like a boon for the sector as it will help reduce their costs through efficient management of their inventory and by consolidating their warehouses. Prices are bound to come down in the telecom sector without affecting the telecom companies bottom-line. Also, the handset manufacturers shall be able to sell their products easily under GST as the need for setting up state-specific entities and transfer of stocks will be eliminated. Another factor that will work in favour of the sector is that cost of logistics will come down thereby bringing the much needed cheer to sector.

5. Textile:Considered to be one of the largest employment generators in the country, the textile sector employs both skilled and unskilled workers in huge quantity. Even though the share of textile sector in the total annual exports is 10% currently, it is expected to grow impressively under the GST regime. GST will affect the cotton value chain of the textile industry, which is used by most of the small andmedium enterprises as it previously attracted zero central excise duty (under optional route).

6. Real Estate: As of now, only the under-construction projects are brought under the ambit of GST, but talks are underway to apply GST on the entire sector. It is worth noting that real estate sector provides employment to a huge workforce, but at the same time is also infamous for corrupt practices and generation of black money. Ensuring the entire sector falls under GST will not only bring in more transparency, it will also contribute to healthy, actual growth in the economy with elimination of shady deals and suppression of shadow economy.

7. Agriculture: India has been an agro-based economy for the longest time and even today, as per statistics, it contributes 16% to the total GDP One of the major factors affecting the sector has been the transportation of produce across states all over India. With GST, this will be taken care of as food products are exempt from GST and even the movement between states of such produce will be smooth seamless with the removal of Octroi and toll nakas

8. FMCG:FMCG sector always had the need to set up multiple warehouses and sales depots in different states to save costs. With GST, the requirement for such fixed unnecessary overheads will be eliminated and the savings can be passed on to the final consumers. A lot of companies have already brought down the prices on various products and soon the entire sector will pass on the benefits of GST implementation.

9. Freelancers: This is a fairly new sector in the country and as it happens with something new, the rules and regulations and the work conditions for this sector aren't clearly defined and remain a work in progress. This is where GST will prove advantageous to freelancers as they can file their returns online. They will be taxed as service providers and the new tax structure has brought about coherence and accountability in this sector.

10. Automobiles: A nation's progress can sometimes be gauged by the rise in demand for private automobiles by the citizens. India is no exception and going by the sales of cars and two-wheelers in the past few years, it can safely be said that automobile sector is healthy and growing as per the expectations of a growing economy. However, it was adversely affected by multiple taxes like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty and the likes. The good news is, GST has subsumed all such taxes making it smoother and efficient for automobile companies to pay their taxes and ensure clean accounting

11.Startups: With focus on Make in India and the entire ecosystem supporting the rise of startups, the only hassle was confusion in terms of taxes for such upcoming enterprises. Earlier, many states had different VAT laws that proved complicated for companies that had a pan-India presence, especially the e-commerce sector. But GST has changed the way business is done. It has come with substantial and meaningful benefits like increased limits for registration, a DIY compliance model, tax credit on purchases and a free flow of goods and services.

As seen above, the overall impact of GST is positive on the economy and the results will start showing in medium to long term window, GST will help in reducing poverty as the tax collection will go up and the government, both state as well as the central, will have more resources to contribute towards development projects. Also, with increased taxpayer base, the burden on just the few taxpayers, like in erstwhile regime. will fall and more people will bear the responsibility of the nation's development. This augurs well as everyone prospers, pay as much tax as anyone else and enjoy the fruits of development, equally!