It is said that nothing is certain but death and taxes. You can insure life but there is no insurance for taxes.
India embarks on a landmark reform implementation under the Goods and Services Tax or GST in 2017. It has an impact on taxes that you pay for everything you consume.
That includes financial services provided to you too!
- Average service tax paid for financial services is 15%. This goes up to 18%.
- So, your monthly or annual insurance premia go up accordingly.
- Your bank will increase all charges in the same proportion.
- Your stockbroker will increase brokerage.
- Your mutual fund may also increase the service charge on professional management fee.
- All loan processing fees will see an increase. So when you apply for a personal loan, home loan, car loan or others, you can expect a proportionate increase in all charges.
- If you are remitting money in or out of India, charges on your remittances will increase.
- Service tax on your credit card outstanding will rise too. If you are charged a penalty for non-payment, it will go up.
But why is it so important if it increases my taxes?
Here is the most important reason. There are 17 multiple taxes levied by India’s central and state governments on all goods and services you consume. All these taxes get rolled into a single national goods and services tax. In the tax world, India becomes a single unified market. This is expected to make business simpler and bring down the overall cost of production of goods or services. The government expects all benefits of these savings to be passed on to the consumer.
How does it compare to what people pay in other countries?
India has opted for a differential tax rate for GST. The tax rate varies across 4 slabs that include 5%, 12%, 18% and 28%. The average rate of 18% covers most of the goods and services Indians consume. This includes financial services like insurance.
The average rate in rich countries on goods and services tax is over 20%, according to data from the Organisation for Economic Co-operation and Development or OECD. Other emerging economies have a flat rate that may be lower than that proposed in India. The differential tax slabs take care of the diversity of income in India. These slabs exempt essential goods and services from the tax or put them into a lower bracket. So, you may pay more for some goods and services that are considered luxury but save money on most of your other purchases.
So don’t worry, you are not paying too much.