From Eating Out To Credit Card Bill Payment, How GST May Impact You

Services, depending on their nature, have been placed under four tax rates of 5 per cent, 12 per cent, 18 per cent and 28 per cent.

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From Eating Out To Credit Card Bill Payment, How GST May Impact You

Stays at five-star hotels could also get costlier


Highlights

  1. Services have been placed under four tax rates under GST
  2. Financial services, telecom in 18% tax under new indirect tax regime
  3. Education, healthcare to remain exempt from taxation
GST or goods and services tax, the country's biggest tax reform since Independence, will be rolled out from July 1. The historic Central Hall of Parliament will host a midnight function on June 30 to launch the new tax regime. Subsuming a large number of central and state taxes into a single tax, GST would pave the way for a common national market. From the consumer's point of view, the biggest advantage of GST would be in terms of reduction in overall tax burden on goods. Services, depending on their nature, have been placed under four tax rates of 5 per cent, 12 per cent, 18 per cent and 28 per cent. Some services will get costlier as financial services and telecom have been put in the 18 per cent GST slab. Education and healthcare will continue to be exempt from taxation.

"The impact of GST on service sector in the short term could be inflationary as the tax rate would immediately shoot up to 18 per cent. However, going forward, it is expected that due to reduced cost, due to availability of GST credit on other items hitherto not available, the price of services will come down which will benefit the consumers," said Sandeep Sehgal, director-tax and regulatory at Ashok Maheshwary & Associates LLP.

The service tax you pay on your insurance premiums will get replaced by GST. This will push up the overall tax burden. For example, the service tax on premiums of term/health plans will go up to 18 per cent from 15 per cent. According to an email from Birla Sun Life, the tax rate on different insurance plans will get revised:
DescriptionCurrent Service Tax RateGST Rate
Term/Health Plans15%18%
Unit Linked Insurance Plan (ULIP Plans on charges levied)15%18%
Traditional/Endowment (1st Year)3.75%4.50%
Traditional/Endowment (Subsequent premiums)1.88%2.25%
Single Premium Plan10%18%
Single Premium Annuity Plan1.45%1.80%
Source: Birla Sun Life

Similarly, servicing your credit card dues and banking transactions where service tax is levied will also get costlier. The existing service tax rate of 15 per cent will be replaced by 18 per cent under GST.

Though telecom companies will get input tax credit when GST is rolled out, the benefits may not be enough for the operators not to pass on the higher GST rate of 18 per cent to customers. Many telecom operators have sought reduction in the GST rate of 18 per cent.

GST on the economy class air travel has been lowered to 5 per cent from service tax rate of 6 per cent while that on business class travel, it has been raised to 12 per cent, from 9 per cent. However, airlines cannot claim credit on aviation turbine fuel as it is outside the purview of GST. Petroleum products including aviation turbine fuel (ATF) are outside the purview of GST. Rating agency ICRA said that these rates changes are not material, and will not have any major impact.

Stays at five-star hotels could also get costlier. The GST rate of 18 per cent will apply on hotel rooms with tariff ranging between Rs 2,500 and Rs 7,500. The highest tax rate of 28 per cent is assigned to tariffs of Rs 7,500 and above. Currently, domestic hospitality industry pays tax in the range of 18-25 per cent, which includes luxury tax and service tax. Hotels and lodges that charge Rs 1,000 a day or less are exempted from the GST, while those charging from Rs 1,000 to Rs 2,500 will be taxed at 12 per cent.

Eating out could get cheaper in some cases. Under GST, service tax and value-added tax (VAT) charged at restaurants will be subsumed. Air-conditioned restaurants will attract GST at 18 per cent on food bill. Non-AC restaurants will attract a 12 per cent GST. However, restaurants which have both AC and non-AC seating options will be charging service tax as per AC restaurants at 18 per cent. According to Ansh Bhargava, head of growth & alliances at Taxmann, in the current regime, while dining at restaurants there are basically two rates of tax that are charged over and above the food value: value added tax (12.5 per cent to 14.5 per cent in different states, service Tax (5.6 per cent) on AC restaurants, Krishi Kalyan cess (0.2 per cent) and Swachh Bharat cess (0.2 per cent).

Ola and Uber rides could get cheaper. Transport services will be taxed at 5 per cent. This rate will apply to cab aggregators like Ola and Uber as well as those that currently pay a 6 per cent tax.

Train passengers may have to pay a bit more for AC and first class travel. Though non-AC train travel will be exempt from GST, on AC and first class tickets, the tax rate will get hiked from 4.5 per cent to 5 per cent.

(With agency inputs)


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