A lot has been said about the positive and adverse impacts of GST during the pre- and post-launch of the indirect tax reform. The views are mostly based on the rates set by the GST Council on various goods and services. When it comes to the financial services sector, the headlines of loans, insurance and credit cards becoming expensive with 18% rate before the launch of Goods and Services Tax (GST) put many looking to avail such services in a state or worry if not shock. Previously, 15% service tax was chargeable.
Suddenly, the customer enquiries pertaining to GST tax list across banks and other financial institutions were pouring in. Hope, these enquiries had got the proper redressal. But it is possible that the queries may not have been answered properly. This article promises to resolve several queries of GST pertaining to the financial services. Let’s get started and find the answers to our questions here.
How Would Loan Fare in GST Era?
The GST is applicable to the entire loans you can find in a bank or a non-banking finance company (NBFC). Typically, it’s been personal, home loan, car loan, business loan, SME loan and few others that we normally apply for. While the interest rate on these loans is out of the purview of GST, the processing fee, prepayment charges and others would increase by a higher 18% GST tax rate as compared to 15% service tax of the past. And when you calculate them in terms of money to be paid by a borrower, it’s not much at all.
If someone had paid a processing fee of say ₹10,000 on a home loan in the pre-GST period, he/she must have paid a 15% service tax on the same. That takes the total processing fee amount to ₹11,500. Now at 18% GST tax list, the same fee would be ₹11,800, just ₹300 more than what you would have paid earlier had the loan disbursed before July 1, 2017, the date when GST became a reality in India. And if a GST on loan is running under your name and you have defaulted on the EMI front. The 18% GST will apply in place of 15% service tax over the 2% penalty to be levied on the late payment.
What About the Effect of GST Tax List on Your Credit Card?
The best shopping tool is undoubtedly the credit cards if you would agree with me. From a flurry of reward points & discounts to complimentary lounge access and golf sessions, the credit card is one fascinating tool to get all your needs fulfilled with ease. A lot of buzz surrounded the news of credit card bills going up in the wake of 18% GST implementation, 3% higher than the previous service tax regime. But many journalists didn’t dig deeper to find out the impact in the true sense. There is no doubt on the 18% GST rate that will be applicable to credit cards. But that will apply only if you revolve your credit by failing to pay the bills on time or paying the minimum due amount.
The revolving of credit brings a situation of interest as well as tax. The tax gets charged on the overall interest accrued in a particular billing cycle. So, if someone’s credit card statement shows an interest of say ₹1,000 in a month, the tax will be ₹180, as opposed to ₹150 earlier. So, if you are paying the entire bill on time, you should not worry as doing so will eliminate the possibility of interest and so as the tax.
Insurance & Mutual Fund Costs to Rise
The premiums of insurance products like term plans, health insurance, vehicle insurance and ULIPs would rise by a 3% with the implementation of 18% GST tax rates slab. When we talk about the mutual funds, the application of GST applies on the fund management costs, which involves distributor commission as well. The distributors registered under GST would have to pay tax at 18%, 3% higher from the earlier times. However, distributors with a yearly income of below of ₹20 lakhs are exempted from the tax liability. The ones earning above would be liable to pay tax at 18%. The increase in tax liability may make the fund managers deduct more from a fund’s NAV on a daily basis.