GST or
Goods and Service Tax set to launch on July 1, is a multistage tax, destination-based
tax that will be levied on every value addition.
One Nation, One Tax? Not Quite, Not Yet
GST would apply to all goods other than crude petroleum,
motor spirit, diesel, aviation turbine fuel and natural gas. It would apply to
all services barring a few to be specified. With the increase of international
trade in services, GST has become a global standard. GST will ensure that
indirect tax rates and structures are common across India and increase the ease
of doing business. This would make doing business in the country tax neutral,
irrespective of the choice of place of doing business.
But the impact of GST won't uniformly
affect industries and consumers. While manufactured goods are expected to
become cheaper, services are likely to get dearer. Moreover, the ambit of
services taxed will also go up.
GST Impact on Mutual Fund Industry
India’s biggest tax reform, Goods and Services Tax
or GST, is about to be a reality from July 1. Many mutual fund investors would
be wondering whether GST will have any adverse impact on their investments.
Well, the answer is: yes, it will have a marginal impact on mutual fund
investments.
The impact will not be that big, but it surely will
change something for the mutual fund investors.The increase in service tax from 15 per cent to
18 per cent would make mutual funds a tad expensive.The higher expense ratio will lead to lower returns
in mutual fund schemes however,
the impact will be marginal.
The government has kept the service tax at a
standard of 18 per cent for the financial services industry. This means a three
per cent points hike in tax liability for distributors. The distributors are
going to face the heat of GST, but not all of them. The smaller distributors,
earning less that Rs 20 lakh per year, will be exempt from the taxes.
GST and Insurance
Primarily, there are three major kinds of life
insurance products – Term insurance plans, Ulips and Endowments (including
money back). The applicability of service tax (in the current format) on their
premium is not similar in all three of them.
The premium paid in life insurance policies represents two portions – risk coverage and savings. The service tax is only on the risk portion of the premium and not on savings portion.
As per the GST rules, the value of services (on which GST is to be imposed) in relation to life insurance business shall be:
(a) The gross premium reduced by the amount allocated for investment, or savings on behalf of the policy holder.
(b) In case of single premium annuity policies, ten per cent of single premium charged from the policy holder.
(c) In all other cases, 25 per cent of the premium in the first year and 12.5 cent of the premium in subsequent years. So, if the premium of an endowment plan is Rs 100, the GST of 18 percent will be applicable on the 25 percent of the premium i.e. on Rs 25, so, Rs 4.5 will be the GST amount.
(d) If the entire premium paid by the policy holder is only towards the risk cover in life insurance such as in term insurance plans, the GST of 18 percent will be on the entire premium.
The premium paid in life insurance policies represents two portions – risk coverage and savings. The service tax is only on the risk portion of the premium and not on savings portion.
As per the GST rules, the value of services (on which GST is to be imposed) in relation to life insurance business shall be:
(a) The gross premium reduced by the amount allocated for investment, or savings on behalf of the policy holder.
(b) In case of single premium annuity policies, ten per cent of single premium charged from the policy holder.
(c) In all other cases, 25 per cent of the premium in the first year and 12.5 cent of the premium in subsequent years. So, if the premium of an endowment plan is Rs 100, the GST of 18 percent will be applicable on the 25 percent of the premium i.e. on Rs 25, so, Rs 4.5 will be the GST amount.
(d) If the entire premium paid by the policy holder is only towards the risk cover in life insurance such as in term insurance plans, the GST of 18 percent will be on the entire premium.
Therefore, the immediate impact of GST would be the higher outgo (premium plus GST) in term and endowment plans, due to the increase in rate of tax on insurance following implementation of the GST. "In theory, this could mean an increase of 3% in premium from the existing applicable premium effective from 1st July 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.
