The goods and services tax (GST) is poised to make select financial transactions such as banking, insurance premium payments and mutual fund investments a tad costlier. The hitherto 15 percent service tax has been replaced with 18 percent GST on services from July 1.
Insurance companies, banks and fund houses have already started sending messages to their customers to inform them of the increased levy.
Also read: SBI joins ICICI, HDFC & Axis Bank to impose restrictions on cash transactions
A host of services rendered by banks such as SMS alerts, processing fee for loans, credit card, debit card charges, fund transfers, locker rentals are poised to become expensive for customers.
In case of ATMs, if the number of transactions by a customer crosses the permissible limit of free transactions (differing from bank to bank), the charge levied by the bank will also see imposition of enhanced service tax of 18 percent.
On equated monthly instalments (EMIs) for home, car or personal loans, there won't be any impact. Similarly, bank deposits will not attract GST since they were not subject to service tax earlier.
Insurance premiums are likely to go up similarly, by an additional 3 percent. For term and health plans, and ULIPs, the revised rate will be 18 percent, while the first year payments under traditional/endowment plans will be 4.50 percent instead of the earlier 3.75 percent.
Insurance payments under traditional and endowment plans for the subsequent years will be 2.25 percent as against 1.875 percent levied earlier.
For single premium plan, it will be 18 percent instead of the 10 percent charged earlier while for single premium annuity plan, policyholders will have to pay 1.80 percent (1.45 percent earlier).
In case of mutual funds (MFs), distributors are liable to pay GST depending on their annual business and geographical locations.
"The type of GST applicable is based on the combination of 'Location of the Supplier' (Distributor) and the 'Place of Supply'. For Supply of Distribution Services, the location of Recipient i.e. Mutual Fund/AMC (MF/AMC) is considered as the 'Place of Supply' and the Head Office of the MF/AMC shall be recognised as the Recipient of Service. It may be noted that the locations of MF/AMC and the Distributor are determined based on the location of the respective entities as per the contractual agreement," DSP BlackRock Mutual Fund said in an update.
The applicable rate is 18 percent.
