How to be prepared post GST?

Adhil Shetty

GST has now come into effect and the Indian economy is following the one nation one tax concept. Several taxes are subsumed into GST and cascading tax effect has also been removed. GST is expected to have a mixed impact on the prices of the goods and services. Some goods may get cheaper, whereas some may get expensive and therefore, it would also impact your personal finance. Let’s figure out and analyse the impact of GST on your personal finance and how you can stay prepared for the same.

Impact on your loan and banking transactions

If you are planning to take a loan, which needs you to pay processing charge, then you have to shell out more tax on such processing charge than before. Earlier, there was a 15 percent service tax on the processing charge but now it is replaced with GST at 18 percent.

Borrowings like home loan, car loan, personal loan, the gold loan, etc. may get charged with processing fees. Similarly, all the normal transactions for which banks earlier used to charge the service tax, will now get costlier by 3 percent as it will now attract GST at 18 percent. Statement request, forex services, cheque book request, cash deposits, demand drafts etc also become costlier.

Another Tryst With Destiny! How GST Will Change Your Life

To save tax, explore and apply for the products which has zero processing charge. Avoid unnecessary bank transactions that invites GST charges.

Impact on credit card usage

Credit card is an important spending tool and it helps you to build a good credit history in the long term. Interest on credit card EMIs and processing fees on such EMIs would now get charged with 18 percent GST.

Some credit cards offer EMIs on zero processing charge. If you are looking to buy something on EMI, then analyse the extra cost that you need to pay for it due to GST applicability and thereafter decide whether you should avail EMI or not.

Manage your post GST investments

GST also impacts the investment as earlier service tax was applied to various investment instrument and now it has been replaced by GST. Mutual funds, Stock investments, Realty Investment etc. will now get marginally costly in comparison to pre-GST period.

The mutual fund’s expense ratio would now increase by around 3 percent. The transaction cost of shares will also scale up marginally. Under construction properties used to be the popular investment product for realty investors in the pre-GST period and it was charged with state Vat and service tax, but now it would be charged by 12 percent GST which is slightly higher than previous tax.

Real estate is now entitled to get the benefit of input tax credit; therefore, the property rates are expected to fall to that extent if developers pass the benefits to the customers. Realty investors should conduct proper due diligence before investing and wait for the developers to revise their prices as per GST.

GST to make insurance premium high

Insurance products such as life insurance, health insurance and vehicle insurance will now attract GST at 18% rate. You cannot avoid the extra tax burden, but in the long run all the insurance companies will get benefited with input tax credit, therefore if they pass such benefits to their customers, then you may also get benefits in terms of stable premium rates in the long term.

Do not fall prey to false promises to switch your existing plan for reducing the insurance cost. Stay insured and do not forget to pay your premium on time.

Finally

GST has eliminated the cascading tax effect and therefore in the long term you may experience fall in your regular expenses such as groceries, clothes, medicines and other goods consumables, however, expenses related to services such as DTH bill, telephone bill, banking charges, investments, credit card bills etc. may go up slightly.

The overall impact may not be significant in monetary terms, in the short to medium term, but in the long term you may experience less stress on your personal finance. So, if you are able to save money due to GST, then invest it wisely to balance the tax effect as you may need money to pay higher tax for some other expenses.

Disclaimer: 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.