The Goods and Services Tax (GST), the biggest tax reform since India's

independence, has announced the tax rates for different goods and services.
We pay service tax on various services availed from banks, mutual fund and
insurance companies.

Service tax is an indirect tax and the Central Board of Excise and Customs
(CBEC) is responsible for the formulation of policies related to levying and
collecting indirect taxes. While the government has finalised the rate of
GST applicable on financial services, the CBEC is yet to come out with a
clarification and exemptions list.

Service tax is currently levied at the rate of 15 per cent (including 0.5 per
cent Krishi Kalyan cess and 0.5 per cent Swachh Bharat Cess) on most
financial services. Under the GST regime, financial services will be the 18
per cent tax bracket. What this means is that you will have to spend
marginally higher to avail these services.

MUTUAL FUNDS
A mutual fund house offers
portfolio management services
to investors. For this, it charges
a management fee. On the
management fee, which is a
part of the total expense ratio
(TER) of the fund, a service tax
at the rate of 15 per cent is
levied currently; this will go up
to 18 per cent after GST is
implemented. SEBI, the capital
market regulator, has allowed
mutual funds to charge service tax over and above TER.
There is a cap of 2.5 per cent on the expense ratio of an equity mutual fund
scheme. Therefore, if the asset management company (AMC) charges a
management fee of one per cent and remaining 1.5 per cent goes towards
other fees such as trustee fee, registrar fee, banking fee, custodian fee,
marketing fee, commission, etc, then as per the current scenario, the
expense ratio of the scheme will be 2.65 per cent - 1.5% + 1 multiplied by
(1+15%). After GST, it will go up to 2.68 per cent.

BANKING SERVICES
A bank charges service tax on most transactions - online money transfers or
withdrawals from ATMs beyond specified limits. With GST, these services
will now attract a tax of 18 per cent instead of 15 per cent service tax,
charged currently.

For instance, if you withdraw from another bank's ATM after exceeding the
free transaction limit, you are charged Rs 20 plus service tax which comes
to around Rs 23; post GST, this will go up to Rs 23.60. However, experts
are hopeful that the increase in cost may not last in the long run as banks
will pass on the benefit of input tax credit, under GST, to their customers.
"Services such as FDs and bank account deposits that do not have an
associated charge currently will continue to remain outside the GST net.
The final list of exemptions from the flat 18 per cent tax rate is still
awaited," says Adhil Shetty, CEO and Co-founder, [Link].

INSURANCE

When it comes to insurance, a service tax is levied on risk premium. In

cases of term, motor and health insurance, the entire premium is
considered as risk premium; therefore, service tax is levied on the entire
premium paid.

In theory, this could mean an increase of 3 per cent in premium from the
existing applicable premium, effective from July 1, 2017, across life, health
and general insurance. However, some of this should be offset if tax on
services availed by the industry are allowed to be taken into account to
decrease insurers' tax paid.
Vighnesh Shahane, CEO, IDBI Federal Life Insurance, explains this further:
"If the premium of the term insurance policy is Rs 20,000 (including
taxes), you will have to pay Rs 600 more (3 per cent more) after July 1.
However, we may be entitled to an additional credit against taxes that have
been subsumed under GST. However, whether premiums fall over time still
remains to be seen."

"In case of ULIPs, the following charges are liable for service tax (including
SBC & KKC) at the rate of 15 per cent - surrender charges, fund
management charges, policy administration charges, switching charges,
mortality charges and allocation charges," says Miranjit Mukerjee, CFO,
Future Generali India Life Insurance.

Real Estate Transaction VAT Rates

Bengaluru Mumbai Chennai Gurugram

VAT 4.0% 1.0% 2.0% 4.0%

 Service Tax 4.5% 4.5% 4.5% 4.5%

Stamp Duty 5.7% 5.0% 7.0% 6.0%

Registration Charges 1.0% 1.0% 1.0% 0.5%

Total Taxation 15.2% 11.5% 14.5% 15.0%

Source: Industry, JM Financial

Here’s a look at how the GST tax framework will impact you and the real estate
sector.

GST Impact on Construction Materials

Under revised order from the government, GST on under-construction flats and
properties will be taxed at 18% which includes 9% SGST plus 9% CGST. The government
has also allowed deduction of land value equivalent to one-third of the total amount
charged by a developer, thus, making the effective tax rate as 12%. The 12% slab offered for
the real estate sector will not affect at the price of the flat but it will be on building
materials.

Hence, we can say that the effective GST rate for under construction property is 12%.
“However, in the new regime, the quantum of ITC will be higher though overflow of credit is
restricted. The price of a property is an outcome of demand and supply dynamics, not taxes
alone,” says S Satish, executive director, RSM Astute Consulting Group. “Imposing GST on
land would have just resulted in land costs rising further at a time when the government is
pushing its agenda of affordable housing nationally,” adds Ramesh Nair, CEO & Country
Head, JLL India.

GST Impact on Construction Materials Tax Rates

Materials VAT GST

Cement 20-24% 28.00%

Iron rods and pillars 20% 18.00%

 Paint, wall fittings, plaster, wallpaper and ceramic tiles 20-25% 28.00%

Sand lime bricks and fly ash bricks 6.00% 5.00%

Stamp duty and property tax to eventually be subsumed

as stated above that stamp duty and registration charges are outside the ambit of GST now
because these are state levies while property tax is a municipal levy. “In many countries
where GST has been implemented, it includes immovable properties as well,” says Satish.
Although the government says that it has plans to eventually subsume these levies into GST,
when and how it will be done is yet to be seen.

Detailed returns need not be filed this year

KPMG Partner (Indirect Tax) Priyajit Ghosh says that the new law was a challenge on the
compliance front and the government has agreed to take a lenient view for the first couple
of months. “The government has said that a detailed return need not be filed by
traders/businessmen only a summary return would suffice,” said Ghosh. Satish adds that
returns can be filed in summary but individual transactions have to be uploaded in the
system.

Teething issues inevitable

Deepak Kapoor of Gulshan Homez said a multiplicity of rates in the previous regime had
created a lot of confusion. “Teething issues, inflationary pressures, and certain short-term
adverse impact will make compliance difficult in the first 12-15 months. But global
precedence says that GST has been beneficial,” adds Tina Rawla, Director (Finance), Hines
India.

Easier redressal of taxation issues

Post-GST, some tax issues will become easier to handle as there would be no overlapping
jurisdiction between the Centre and states with regards to levies on services and goods.
“Seeking redressal of a taxation issue would be far easier because in the new regime the
same rule would apply to everyone,” explains Ghosh. However, Satish adds that new issues
related to classification, composite and mixed supplies, ITC etc can crop up.

Transition period a pain for developers, consumers

Kapoor added that making real estate transactions in the transition period will lead to
ambiguity on how will ITC be calculated when the new law kicks in. “Post-July 1, 2017, if an
invoice for a unit has to be made, how will calculations be arrived at? If a customer wants to
buy a real estate product on July 1, what should I tell him? Should I tell him that I am selling
you my real estate but the actual price will be revealed after 3 to 6 months when I get my
ITC details,” asks Kapoor.
Unregistered vendors will be a headache
Unlike in the past, the liability to pay taxes has been shifted from the provider of goods and
services to the receiver, if he happens to be a registered person. Satish adds that any
purchase from an unregistered dealer will attract a reverse charge on the recipient which
adds to the compliance cost of the purchaser. “Post-GST rollout, many corporates may not
prefer purchases from unregistered dealers,” says Satish.

The impact of GST on real estate buyers and investors

GST is expected to be a sentiment booster for the industry and will seek to revive buyer and
investor interest by bringing more transparency in taxation. As the perception of the sector
is said to have improved, the GST on real estate transactions is likely to drop around one to
three percent if it all they do, according to a report by Edelweiss Securities.

The impact of GST on property prices will have a positive impact, as the taxation earlier
was too complicated for buyers, which ahs has been made simpler under the new tax
regime. For instance, buyers were earlier liable to pay taxes depending on the construction
status of the property and the state where it is located. Buyers also had to pay VAT, service
tax, stamp duty and registration charges on purchase of an under-construction property.
However, if the purchase was for a completed property, the tax applicable were stamp duty
and registration charge.

Furthermore, since VAT, stamp duty and registration charges were state levies, each state
specified its own figures. Service tax was a central levy and was charged on construction. So
the calculation of taxes was very tedious in the earlier regime. GST charges all under-
construction properties at 12 percent of the property value. This excludes stamp duty and
registration charges. No indirect tax is applicable on sale of ready-to-move-in properties
hence the tax will not apply to those. The biggest takeaway is that GST is a simple tax that
applies to the overall purchase price.

A developer could take input credits on the sale of under construction property against
the taxes that are paid by the buyer. Earlier, VAT and service tax used to account for nearly
9% of the ticket price of the property. Since that will be lower than the GST applied to the
sector, the builder will have to pass on the benefit of the price reduction to the buyer. The
price reduction is on account of the input tax the input tax credits that the builder enjoys.

Benefits to Developers
If you are a developer, you were earlier charged for Central Excise Duty, VAT and entry
taxes collected by the state on construction material costs. Further, you had to pay a 15%
tax on services like labor, architect fees, approval charges, legal charges etc. Your tax
burden was transferred to the buyer eventually. However, under the new regime, the
changes in construction costs are not grave. Furthermore, reduced cost of logistics will
result in reducing expenses as well. The input tax credits will also help you increase profit
margins and it will be a simpler tax to work with.

Here, all the implications of GST on the real estate business have been deeply discussed,
keeping in mind both the developers and buyers. Still, if any buyer, property dealer or
developer need assistance on the GST, can comment below for the same. We would be at
our earliest to help in all possible ways.

The GST will replace at least 17 central and state taxes to make way for a single,
unified taxation system and will impact almost all industries. The GST will introduce
areas that will benefit the customers, whereas there will also be areas where the
consumers may have to shell out more. The banking and financial sector is one such
area that is being predicted to get a little more expensive for the consumers
compared to what it is today after the implementation of GST. GST for banks and
financial services will require a shift from centralized compliance to state-based
compliance and will have a noteworthy impact on financial products and IT systems.

Read: GST Impact on Ordinary Consumer

Tax Rate
Currently banking and financial services are taxed a service tax of 15 percent. The
GST is being speculated to have tax rates between 18 to 20 percent. This implies
that banking and financial services are set to become expensive for the consumers.
Apart from the taxes, there will also be regulatory compliances that banks and
consumers are expected to follow under GST. Since IGST will be divided into CGST
and SGST, there will be different sets of GST compliance processes that need to be
abided by.

Read: What is CGST, SGT and IGST?

Also, there are several banking activities that are currently exempt from service tax,
e.g. Fund-based activities like interest to be paid on deposits or savings accounts,
and loans disbursed. These services might incur GST unless exclusively mentioned
otherwise.

Collateralized Borrowing and Lending Obligation (CBLO)

CBLO is a RBI backed obligation between a borrower and lender that defines the
terms and conditions of a loan. Currently, the fee, discount or the interest on CBLO
is exempt from service tax. As of now, service tax for financial services is imposed
on fee-based activities like processing fee and transaction fee. However, revenue
from income-based activities like interest, investment, propriety trading etc. is
excluded from the tax ambit.

With the GST coming into picture, the government should make provisions for clear
demarcations between fee-based and fund-based transactions. If this demarcation is
not made and if fund-based transactions are not exclusively exempted, revenue
earned from instruments like the CBLO will also come under the blanket of GST and
the GST tax rate is expected to be higher than the current one.
Read: Service Tax on Banking and Financial Services

Finance Lease
Under the current system of taxation, both VAT and service tax is applicable on
finance lease transactions. Even non-financed lease transactions are subject to VAT.
However, import of assets on lease basis does not attract VAT. With the GST law, a
finance lease will be treated as the supply of goods, whereas an operating lease, as
a service. Both will thus be subjected to GST. Additionally, the leasing of an asset
out of India, will also come under the GST.

Business Process Change

Over the last decade, customers are used to utilizing banking services anytime and
anywhere. Even while travelling a customer may access his account or use his card
anywhere in the world. Under the GST, defining the location of service supply is a
subject of cardinal importance. Therefore for abiding to the GST norms, a bank that
has presence in only 15 states will need registration for the rest of the states and
union territories.

Similarly for loans, under normal circumstances, initial customer verification is done
by local agencies, loan processing is done centrally, disbursement locally, and
repayment by bank transfers/ECS is mandate. With GST, determining the point of
supply for each of the processes will become extremely cumbersome.

Read: Loan Evaluation Process in India

Some bank services to a customer are centralized (Demat Account, Wealth

Management) whereas some others are localized (Savings Account, Personal Loan).
Since GST is a destination-based tax, these services will call for additional
compliance formalities and may increase the compliance costs courtesy multiple
levels of assessments and audits under the proposed GST structure.

To Conclude
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.

 The Good and Services tax in the biggest indirect tax reform since 1947 and it
has potential to lead the economic integration of India.
 This will be levied on manufacture sale and consumption of goods and
services.
 In the words of the Finance Minister Arun Jaitley, the GST bill will lead to the
economic integration of India.
 The main function of the GST is to transform India into a uniform market by
breaking the current fiscal barrier between states. Thus the GST will facilitate
a uniform tax levied on goods and services across the country.
 Currently, the indirect tax system in India is complicated with overlapping
taxes levied by the Centre and the State separately.
 Framework of the GST will replace indirect taxes
The GST will have a 'dual' structure, which means it will have two
components- the Central GST and the State GST. They will both have separate
powers to legislate and administer their respective taxes. Thus equally
empowering both.
 Taxes such as excise duty, service, central sales tax, VAT ( value added tax),
entry tax or octroi will all be subsumed by the GST under a single umbrella.
 With passing of the GST bill, we can expect a climate of improved tax
compliance.
 Thus, the GST will basically have only three kinds of taxes, Central, State and
another called the integrated GST to tackle inter-state [Link] goods
& services tax (GST) is advertized to be a game changer for the economy. But
the impact of these tax reforms, whenever they come, will not be immediate.
 Yet, it will be a big sentiment booster for the markets because the impact will
be great in coming years and it is directly going to enhance Indian GDP.
Enhancing GDP will attract more foreign investments and which in turn
would take India to greater heights and obviously stock markets will make
new highs.
 Major impacts on Indian markets and economy
1) The GST bill, if implemented, will boost the ease of doing business in the
country, because this single tax (GST) would come as a boon for those
industries or businesses that often deal with multiple levies within the country
 2) GST will boost earnings of companies in logistics, manufacturing and
transportation sectors during second half of 2016 if GST is implemented from
April 1, 2016.
 3) It is going to make our tax administration a lot more efficient, because you
are ultimately collapsing manufacturing taxes through excise duty and service
taxes as well as states VATs into a single tax, which obviously brings a lot of
efficiency that can add between 100 bps and 200 bps to GDP in the long run.
 Any positive news around GST will be favourable for markets at a time when
concerns over the US Federal Reserve rate hike and China jitters have capped
most of the upside in the domestic equity market.
 Major blockage for passage for GST Bill
The government plans to roll out GST from April 1, 2016, and it can
potentially boost India's GDP by 100-200 bps, said experts. For that the
government needs Parliament approval to the pending bill during the ongoing
winter session. The main opposition, Congress, has stalled the passage of the
bill in the Rajya Sabha.
 If the government fails to pass the GST bill in the winter session of
Parliament, it will miss the April 1 deadline, which might not go down well
with markets and foreign investors.
 When is the proposed GST set to start functioning and what are the
hurdles?
The GST regime is intended to be functional from 1st April, 2016.
 The first mention of the bill was in 2009 when the previous UPA government
opened a discussion on it. They were successful in introducing the bill but
failed to get it passed.
 On 17th December 2014, the NDA government made slight changes to it and
redefined it in the Lok Sabha. The bill got cleared on May 6th this year.
 However the current challenge facing the bill is that it needs two-third
majority of both houses and 50 percent of the state assemblies will have to
ratify it.
 The bill is now stuck in the Rajya Sabha, because the current government does
not hold a majority here.
 The role of the opposition party
The Congress demands for reforms in key areas of the GST has been stalling
the process of passing the bill.
Three main concerns of the Congress over the bill are:
- one per cent additional tax as goods move across states
- the constitutional cap of 18 per cent and an independent dispute redressal
mechanism.
- the party has maintained that the government was ignoring the concerns
raised by the party on the legislation.

Goods and service tax and its implications

ET Bureau|

Dec 25, 2009, 04.12 AM IST

0Comments

The Good and Services tax(GST) is the biggest indirect tax change since 1947

and it plays an important role in the economy of India. GST will be levied on

manufacture sale and expenditure of goods and services. The main purpose of

GST is to remove all of indirect taxes and create a unified common market. The

Finance Minister Arun Jaitley says that the GST bill will play an important role to

lead the economic integration of India Thus the GST will help a uniform tax

which is levied on goods and services across the country.

Important Fact of GST

 In the current tax scenario, there is multiple indirect taxes are levied on

goods and services which are the main impediment to growth the India’s

economy. Taxes are taxed in many forms like CST, Entry tax, Excise duty, VAT,

Customs duty, Stamp duty, Entertainment tax and any other have

fragmented the Indian market. In this scenario, the introduction of GST is

considered necessary for economic growth. GST will have quite a positive

impact on the indian economy. Some of the sectors are more influenced

compare to another sector under GST.

 After GST implementation it removes all of the indirect tax and makes a

single common market leading to an economy of scale in production and

efficiency in supply chain. It will enhance trade and commerce.

 GST will eliminate rapids effect of taxes embedded in the cost of production

of products or services and will provide consolidated credit throughout value

sequence. This will considerably decrease the expense of natural products

and will enhance ‘Make in India’. The areas which have long value sequence

from basic products to final consumption stage with function distribute in

several states such as FMCG, pharmaceutical, consumer resilient, vehicles

and technological innovation products will be the major recipients of GST

application.

 GST will promote to ease of doing business in India. Incorporation of

current several taxations into single GST will considerably decrease the

expense of tax conformity and deal price. Stable, clear and foreseeable tax
program will motivate local and foreign investment in India to create

significant job opportunities.