Business

How GST rates affect investors

 What is GST?

GST is one indirect tax that is levied by the Centre and collected by the states. It will subsume all indirect taxes at the Centre and states level like Service Tax, Excise Duty, VAT, Entry Tax etc into itself. GST will apply to the manufacture, sale and consumption of goods and services at the national level. It will be levied at every stage of sale or purchase of goods or services except for certain exempted goods and services.

Increased profit for companies

Businesses will be taxed only once instead of multiple times. This means that companies with large supply chains will see a significant decline in taxation, as they consume most of their inputs tax-free as they move forward in the supply chain. This should help improve their profitability over time even though you might have to go through the process of changing your systems and process like editing your current invoicing format based on e way bill format pdf suggested by the GST council.

For the auto and hospitality industry

Not every industry is happy with this new change. Auto, hospitality sectors and certain other industries may see an increase in their tax payout, but some industries will be affected less because of the reduced tax payout. Additionally, schemes like the GST amnesty scheme offer you enough opportunity to become compliant. Visit this page to know in detail.

If you own the stocks of such companies, do check if the product or service is essential or in high demand. This is because the increase in costs could be forwarded or cascaded. This could limit the negative impact on profits.

Good news for the consumer goods sector

Most consumer goods will have a zero per cent tax rate under GST. This includes items like packaged foods, soaps, toothpaste, shampoos, detergents, hair oil, washing powder, shaving cream etc. The states will also lose their current tax revenue from these products which were taxed at around 20-24%. Some states like Maharashtra had even higher taxes on some of these products (like detergents), which could mean an even higher loss for them. This could lead to an increase in demand for consumer goods companies as consumers would not only be able to save money but also would have more disposable income now

Effect on investments

It is generally recommended that you break up your financial investments. For example, you should keep a part of your investments in equity and the rest in fixed income. This helps in mitigating risk as well as ensuring that your money keeps growing over time. Also, with a portfolio approach, you are likely to be more successful in beating inflation.

However, with the new GST rates, your portfolio may need a rethink. Since mutual funds charge fees, they are likely to be taxed at 18% under the GST regime. This will reduce the returns on your investment. If you don’t want to lose out on returns, you can switch over to ETFs or pay-out funds. These do not attract any entry load and are thus tax-free** under the new scheme.

Effect on insurance policies

Your insurance policy also needs to be revised if it is a regular premium one. In such policies, the insurer collects premiums from you periodically and pays out claims when needed. With GST set at 18%, the claims are likely to be taxed at this rate as well. However, if yours is a term or endowment plan, there is no impact on returns since these products typically have returns linked to an index or market-linked rate

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