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Last Updated : Jul 01, 2017 01:53 PM IST | Source: Moneycontrol.com

How will GST impact retail investors and investment in stocks or MFs?

The new GST rates will apply to some banking transactions, mutual funds, insurance and stock market which were earlier taxed at 15 percent including Krishi Kalyan cess and Swachh Bharat cess.


Nikhil Kamath

Zerodha

There is minimal impact from the GST where retail broking is taken in isolation with a small increase in the amount of service tax. The impact on ancillary sectors and the overall industry is more from an aspect of changing policies and implementing new means of calculating tax which will come with its own learning curve.

The new GST rates will apply to some banking transactions, mutual funds, insurance and stock market which were earlier taxed at 15 percent including Krishi Kalyan cess and Swachh Bharat cess.

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In mutual funds, the total expense ratio (TER) charged for managing funds and distributor commissions etc., would increase by 4-5 basis points. TER for mutual funds varies between 1.25 percent and 2.75 percent.

When it comes to stock broking, in particular, the brokerage component on which service tax is calculated is a very small proportion of the overall transaction. This could slightly dearer to retail participants. We don't see this as having a material impact on the overall charge structures.

In conclusion

The introduction of the GST model is a significant development that is set to transform how the Indian taxation system works. However, considerable work needs to be done and the implication of GST for banks and financial services needs to be understood.

The government should also ensure the GST legislation addresses the complete concerns of banks and financial services so that the GST reform turns into a success for everyone involved.

There is still confusion around if GST will impact security transactions. GST is fundamentally a destination based ‘consumption’ tax whereas securities are ‘investments’. Imposing a value added tax on something which merely represents investments would go against the principle of GST. What can be subjected to GST, in our view, are services such as brokerage, commissions, bank charges, etc which inevitably accompany transactions in securities and not the securities themselves.

Example: Brokerage which could be charged at Rs 100 for a share transaction had a service tax off 15 percent, this would go up to 18 percent under the new norm. This will mean a net payout of Rs 118 instead of the earlier 115. This will have a nominal impact to an investor.

Disclaimer: The author is Co-founder & Head of trading, Zerodha. The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Jul 1, 2017 09:34 am
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