The new tax regime implies a 3% rise in costs for both investors and investment advisors.
The path-breaking historic law named Goods & Services Tax (GST) is now a reality. A lot has been written about this tax over the past 1-2 years regarding its formulation, difficulties in its passage and finally its impact on businesses and consumers. While GST is expected to bring down the cascading effect of multiple tax levies on various goods and services, the jury is still out on whether a single tax will reduce prices of goods and services.
GST and financial services
As among other sectors, GST directly impacts the entire set of financial services players too, including mutual funds, insurance companies, brokerages, banks, etc, which are now subject to a tax rate of 18% as opposed to a service tax of 15% earlier.
For retail consumers, the GST rate thus implies a higher outgo in terms of the total cost of a financial transaction. The gross cost of transactions when you add the GST to equity share brokerage, demat annual charges, bank service charges or loan processing fees will burn a bigger hole in the end-consumer’s pockets, who do not use these services to further any business. Insurance premiums including mediclaim and other indemnity policies will see a hike in the total premium outgo due to the 3% differential rate as discussed above. Likewise, term plan premiums and the applicable charges on investment-linked life insurance policies will also bear a higher tax bill (See table below).
Impact on financial advisors
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