Benefits of Goods & Services Tax to the Consumer
At the stroke of the midnight hour on June 30-July 1, 2017, Prime Minister, Mr Narendra Modi along with the President, Mr Pranab Mukherjee, in the presence of other esteemed dignitaries launched the Goods & Services Tax (GST) in the bedecked Central Hall of the Parliament by pressing a ceremonial buzzer.
Welcome to the GST regime — an era where several indirect taxes levied by the Centre viz. Central Excise duty, Duties of Excise, Additional Duties of Excise, Countervailing Duty (CVD), Special Additional Duty of Customs, Service Tax, Central Surcharges and Cess (related to good and services), along with the State taxes viz. VAT, sales tax, luxury tax, entry tax, entertainment & amusement tax, tax on lotteries, betting & gambling, State Surcharges and Cess (related to good and services) will be subsumed into one.
This is the biggest tax system reform in the history of India which will now experience a One Tax One Nation, as the Government calls it.
Let’s see through this article, how GST will affect your daily lives as citizens of this great democracy…
Though Prime Minister, Mr Narendra Modi coined the term ‘Good and Simple Tax’, it is noteworthy that instead of one single GST rate, variety of goods and services will be taxed at different rates. As there are several tax rates, we need to see if it would really make your life simple.
The GST Council has approved a five-tier tax structure:
Nil, 5%, 12%, 18% and 28%.
Here’s how GST will have a bearing on your daily life…
GST Rate - Nil or Exempt
Fresh meat, fish, chicken, eggs, vegetables, fresh fruits, milk, butter milk, paneer, curd, natural honey, flour, maize, rice, besan, bread, prasad, salt, seeds, cereal grain hulled, palm jaggery, water (other than aerated and mineral water), neera, aquatic feed, poultry feed, organic manure, etc.
Similarly, items such as bindi, kumkum, sindur, kajal, bangles, handloom, stamps, judicial papers, newspapers, printed books, etc.
Hotels and lodges with tariff below Rs 1,000, travel by local trains, metro, travel by non-AC, special trains for religious tour by train anywhere in India
GST Rate - 5%
Frozen food, fish fillet, prawns, cream, skimmed milk powder, yoghurt, kephir, branded paneer, coffee, tea, spices, rusk, pizza bread, cashew nut, cashew nut in shell, raisin, ice and snow, frozen vegetables, sabudana, sugar, edible oils, kerosene, bio-gas, fertilizers, medicines, insulin, broomsticks, steel utensils, copper utensils, kerosene stoves, coal, lifesaving API, apparels below Rs 1,000, footwear below Rs 500 etc.
Restaurants that have a turnover of less than Rs 50 lakh, first class and AC train fare, air ticket by economy class
GST Rate - 12%
Frozen meat products, sausages, animal fat, soya milk drinks, butter, ghee, cheese, medicine, branded tender coconut water, fruit juices, beverages containing milk, bhujia, namkeen, Ayurvedic medicines, all diagnostic kits & reagents, aggarbati, candles, tooth powder, umbrellas, exercise books, note books, spoons, forks, ladles, skimmers, tongs, knives, spectacles, sport goods, bicycle, aluminium utensils, sewing/ knitting needles, LED lighting, fountain pen ink, ball pen ink, children’s picture, drawing and colouring books, tractors and so on.
Non-AC hotels / alcohol serving restaurants (with turnover above Rs 50 lakh), Hotel room tariffs between Rs 1,000 and Rs 2,500, business class air tickets, works contract, state-run lotteries
GST Rate - 18%
Flavoured refined sugar, biscuits (all categories), pasta, cornflakes, pastries & cakes, jams, sauces, soups, ice-cream, aerated water not containing added sugar or sweeteners, mineral water, vinegar, instant food mixes, preserved vegetables, curry paste, dentifrices & toothpaste, mayonnaise, salad dressings, mixed condiments & seasonings, wafer & wafers (other than coated with chocolate or containing chocolate) fitness supplements, other API, tissues, envelopes, carbon paper, kajal pencil sticks, soaps, mobile phones, cameras, printers (other than multifunction printers), CCTV, industrial cables, hats, helmets, bamboo furniture, petroleum coke, petroleum bitumen, bidi patta, footwear costing more than Rs 500 etc.
Financial services, telecom services, IT Services, AC & partly serving restaurants, 5-star restaurants, alcohol serving restaurants, Hotel room tariffs between Rs 2,500 and Rs 7,500.
GST Rate - 28%
Bidis, cigarettes, chewing gums, bubble gums, white chocolates, cocoa butter, instant aroma coffee, custard powder, sugar syrups, waffles & wafers coated with chocolate and containing chocolate, pan masala, aerated water containing added sugar or sweeteners, shaving creams, aftershaves, razors, deodorants, perfumes, manicure & pedicure sets, beauty or makeup sets, special toothpastes, dental floss, hair shampoos, hair dyes, hair cream, sunscreen, wigs, false beards, false eyelashes, artificial flowers, leather bags, wristwatches, furniture, air conditioners, fans, refrigerators, coolers, stoves (other than the ones which on kerosene, LPG), electric hot plates, washing machines, vacuum cleaners, dishwashers, printer (which photocopier and fax), video game consoles, exercise equipment, hair clippers, cars, motorcycles, aircrafts for personal use, yachts, vending machines, pianos, rubber tyres, ceramic tiles, paints, cement, plaster, putty wall fillings, wallpapers, tempered glass, aluminium foil, plastic products, etc.
Private run lotteries authorised by state, race club betting, 5-star hotels ( and those having room tariffs over Rs 7,500), movie tickets, etc.
Broadly here’s the impact…
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Daily consumption: Edible items such as milk, curd, food grains, chicken, eggs, rice, paneer, honey etc. would get cheap, offering a relief for your household budget —provided they’re the non-branded ones. But the moment you indulge in branded items for daily consumption, this category of goods would cost you dearer depending on what you buy. For example, branded rice, branded honey, sauces, jams, soups, exotic tea & coffee, etc.
Even items of personal hygiene and upkeep viz. shaving creams, razors, sunscreen lotions, hair dyes, hair creams, deodorants, manicure & pedicure sets would turn costly. Thankfully soaps, hair oil, dentifrice – toothpaste and so on would turn a bit cheaper owing to 18% GST as against 26% tax earlier.
But when you head out shopping, to buy goods from a grocery store / supermarket / mall, be careful what you’re adding to your shopping bag, or it could pinch your pocket and take a toll on your personal finance.
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Lifestyle items and services: Buying your favourite leather bag, wristwatch, and so on could turn expensive. But bicycles, motorcycle, car could be inexpensive depending on the segment in each of these you choose to buy.
Consumer durable goods and home appliances such as washing machine, fans, air-conditioners, coolers, dishwasher, vacuum cleaner, refrigerator, furniture, etc. would cost you dear. In addition, items such as cement, putty wall fillings, wallpapers, ceramic tiles, paints, etc. bought for the upkeep of your house / commercial premise could pinch your pocket owing to the highest tax bracket they’re placed in.
With respect to dining out, it depends on the place you’re dining at. If the restaurant has a turnover of less than Rs 50 lakh, it will charge you 5% GST. Further, as apparent from the table above, in non-AC restaurants, whether serving alcohol or not, you would have to dole out 12% GST (as against 6% earlier), but if it is AC restaurant – irrespective whether serving alcohol or not – 18% GST will be levied. Further, if the restaurant you are dinning in is partly AC and partly non-AC, immaterial whether alcohol is served or not, the GST rate will be 18%. Likewise, dining at 5-star (luxury) restaurants will cost you 18% GST.
Similarly, for hotel stay – regardless of leisure or work – the GST rate will determined by the room tariffs. Hotel & lodges with tariff below Rs 1,000 are exempt; so there’s no question of paying GST if you live in these. But those with tariff between Rs 1,000 and Rs 2,500 will attract 12% GST, while those with tariffs between Rs 2,500 and Rs 7,500 would levy 18% GST. The ones above 7,500 and the 5-stars would levy 28% GST. So look at the tariff card before you check, rather than receiving a shock later.
If you’re a smoker and/or indulge in a couple of drinks —even aerated water with sweeteners everyday — watch out as you’ll have to pay what’s called as a ‘sin tax’ of 28% GST.
Likewise for movie bugs, tickets could be a killer with a 28% GST. Although, the Government has provided a concession on ticket below Rs 100 —taxing them at 18%!
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Financial services: As against the earlier service tax rate of 15% on banking, insurance and capital market transactions, the rate now under GST will be 18%. So remember, on financial transactions vide ATMs, NEFT / RTGS / IMPS, debit card, credit card, e-wallets, will cost you more.
Loan processing fees too would go up as an effect. Paying insurance premiums will also prove costly. Even investors in mutual funds will have to bear a greater cost, as don’t be surprised if mutual fund houses revise their expense ratio upwards as an effect. Plus, effective cost of advice rendered by the investment adviser / financial planner / financial guardian owing to GST may go up. While buying shares, the brokerage post-GST will also be greater as against earlier. Further, the cost of holding securities in a demat account would go up as well in the GST regime.
• Real estate: If you’re planning to purchase a house or commercial premise, a GST rate of 12% will be applicable if it is under-construction (excluding stamp duty and registration) as against the erstwhile service tax of 4.5%. On the outside this looks expensive, but if the input tax credit is passed on as the Government expects, it could be a boon for real estate buyers.
For completed or ready-to-move-in projects, there would be no GST, as there is no indirect tax applicable on sale of such property.
Further, the Government has clarified that ‘affordable housing’ under the Pradhan Manrti Awas Yojan (PMAY) which is the cornerstone of its ‘housing for all by 2022’ vision, will not be subject to GST.
For those of you who are already flat owners in a co-operative housing society, GST may upset you. If you’re paying maintenance charges over Rs 5,000 and the society in total collects more than Rs 20 Lakhs from all the members, you will have to cough up more accounting for the 18% GST rate applicable thereto, as against 15% tax rate in the previous regime. However, this levy is not applicable on property tax, municipal taxes, water bills, and so on. But a repair fund would be 18 GST levy.
As regards residential renting arrangements, they were exempted under the erstwhile service tax regime; under GST too they will continue to enjoy exemption. To put it simply, there will no GST on house rents.
• Telecom services: From your next billing cycle, don’t be surprised if you receive a slightly higher bill for your landline, broadband, mobile bills effective July 1, 2017, as the GST rate applicable now will be 18% as against the erstwhile service tax of 15%.
• Transport Services: The Government has decided to charge a 15% cess over and above the GST rate of 28% on motor vehicles for transport of more than 10 persons (including the driver), which potentially will make commuting by bus expensive for you if the respective service providers decide to pass on the price rise.
If you choose to take a ride on local trains, metro, travel non-AC by train, take a special train for religious tour anywhere in India; it would provide a relief as thankfully they’re exempt. But if you do go on a train journey by first class and AC, it’ll attract 5% GST as against 4.5% earlier, making it a tad bit costlier.
Hopping into app based cab services will be slightly cheaper as the incidence of taxation has reduced to 5% from 6% earlier. On the other hand, if you decide to drive or ride down by yourself by Petrol or Diesel vehicle, you don’t have to worry about the fuel bill, as petrol and diesel for now are not a part of GST.
With respect to travel by air, the cost would depend whether you choose to travel by economy or business class. For the economy class airline fare, the GST rate applicable is 5% as against the previous airline service tax thereto of 5.6%, making the fare marginally inexpensive. But in case you chose to travel business class, the airline fare would be a bit expensive, owing to 12% GST applicable thereto as against 8.4% service tax applicable earlier. However, what’s interesting is Aviation Turbine Fuel (ATF) has been kept off GST for now.
To conclude…
In the long run, with GST, the “One Nation, One Tax, One Market” objective will fructify in the form of:
✔ Unified common national market
✔ Reducing the burden of multiple taxes (as seen in the earlier tax system)
✔ Simplifying the indirect tax regime
✔ Strengthening and promoting the sense of nationhood and unity
✔ Facilitating movement of goods and services across the country with ease
✔ Boosting exports
✔ Boosting investments
✔ Generating employment due to increased economic activity
✔ Providing a level-playing field for producers and consumers across the country
✔ Benefitting the poor and common man (considering the exemption list and goods & services in the 5% tax bracket)
✔ …and much more!
All the aforementioned factors and more, would in turn be abetting for India to clock a higher economic growth (by around 2.00%-2.50%) in time to come.
So let’s embrace the GST regime and support the Government’s decision. When you select goods and services in daily lives, consciously decide on some of them in the interest of your long-term financial well-being. Besides, when investing, take prudent decisions in your path to wealth creation and accomplishing your financial goals.
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