How the GST rates will affect your money
By Team Legistify / 2017-05-24

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The statutory tax rates under the Goods and Services Tax (GST) Act have been announced and will be become effective from 1 July. These will replace all applicable indirect taxes. While some goods and services are going to get cheaper, some are set to get taxed more.

Currently, various financial services and transactions attract service tax, which will now be replaced by GST. Under the current tax regime, service tax is a flat 15% across all services. However, under GST it will have four slabs: 5%, 12%, 18% and 28%. Here is how it will impact your investments and financial transactions. Financial services will come under the 18% GST rate.

Impact on mutual funds

In case of mutual funds, expenses incurred by asset management companies (AMCs)—which impact a scheme’s net assets value (NAV)—attract service tax. Many components of these expenses attract service tax. Once GST is implemented “the total expense ratio (TER) will have to go up,” said Aashish P. Somaiyaa, managing director and chief executive officer, Motilal Oswal Asset Management Co. Ltd.

However, there is a cap on the expenses that AMCs can charge. “We wait for further clarification on this because at present service tax is charged on...custodian fees and registrar and transfer agent fees, apart from management fees. Now, if charges of all these sub-elements of TER go up because of hike in service charges, and the TER is not allowed to go up, then the only charge that would come down is management fees. This would hurt AMCs. Some intervention would be required,” said Somaiyaa.

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