“I see actual charges to investors going up by about 3-4 basis points,” said Swarup Anand Mohanty, chief executive officer, Mirae Asset Global Investments (India) Ltd. One basis point is one-hundredth of a percentage point.
“The impact of the hike in service tax on portfolio management services fees will be felt by the investors,” said a wealth manager who sells portfolio management services products. But investors don’t have a choice because it is a statutory tax and you’ll have to pay. “It’s nothing new; I have seen service tax go from 10%, to 15% and now to 18%, he added.
Impact on insurance policies
Premium for life insurance and general insurance policies are set to increase after the implementation of GST. In case of life insurance policies, the effective rate of service tax differs based on the type of policy you buy. While service tax is charged on the entire premium of a pure life cover plan, other products (such as Ulips and endowment plans) attract tax only on the charges levied.
“The tax on term plans has gone up from 15% to 18%. On Ulips, tax of 18% will apply on the charges levied. For traditional savings and investment plans, the tax will go up from 3.75% to 4.5% of the premium in the first year and from 1.875% to 2.25% of the premium from second year onwards,” said Vighnesh Shahane, chief executive officer and whole time director, IDBI Federal Life Insurance Co. Ltd.
So, if the premium of your term insurance policy is Rs20,000 (including taxes), you will have to pay Rs600 more after 1 July. “However, we may be entitled to additional credit against taxes that have been subsumed under GST. The law states that any benefit on account of input tax credit needs to be passed on to the consumers. We will work with the insurance regulator and the council on this; however, whether premiums fall overtime still remains to be seen,” added Shahane.
General insurance policies could also get more expensive for the customers, with a hike in the tax rate from 15% to 18%. “This however could be offset by the input tax credit we would now be entitled to under the GST,” said Gopal Balachandran, chief finance officer and chief risk officer, ICICI Lombard General Insurance Co. Ltd.
Impact on real estate
Because of high-value transactions, even a slight increase in taxes can substantially increase the costs of real estate. “Prima facie it looks like that there will be a neutral impact from the cost perspective,” said Surabhi Arora, senior associate director, research, Colliers International India. Although, the work contracts will attract 12% and most of the construction material is under 18% and 28% slabs, the availability of input tax credit should neutralize the overall impact. A lot will depend on the proper implementation and a system of claiming tax credits, he explained. However, when you buy an under-construction apartment or hire a builder to build a house, you have to pay service tax on the cost of construction, which is calculated on 30% of the property’s value. And there is lack of clarity on whether this arrangement will continue or change.
Impact on banking services
Various services such as ATM transactions (after free transactions) and non-maintenance of minimum monthly average balance attract charges, which will now be taxed at 18% instead of the currently applicable rate of 15% tax. “The extra 3% that will be charged to us will become a cost to us, no doubts about it,” said Amit sarkar, partner and head-indirect tax, BDO India, a tax advisory. But here too, the effect of tax credit offset is likely to soften the blow.
News Source- Live Mint