Buying a car, gold or property? How GST will impact your expenses

Govt has surely kept the consumer's interest in mind while deciding the tax rates under GST

The introduction of GST from 1 July 2017 would not only have an impact on businesses in India but also on the common man’s monthly budget. The prices of goods and services forming part of the monthly budget would either increase or decrease depending on the GST treatment.

Eating out
For example, when an individual eats out in a restaurant, today there is service tax and VAT charged in the invoice, apart from having a service charge collected additionally. The service tax and VAT is not applicable for all types of restaurants and therefore varies from restaurant to restaurant. Under GST, the rate of tax on the restaurant invoice could be either 5%, 12% or 18%, depending on whether the restaurant is under composition scheme, non-air conditioned or air-conditioned, respectively. The replacement of service tax and VAT with GST at the above rates would make it simple for the customer to understand how much is actually going to the government in terms of taxes.

Buying gold

When it comes to buying gold, we Indians cannot stay away from this temptation. The taxes on gold currently is around 2% in most states, comprising of 1% of excise duty and 1% of VAT in most States.
 

Kerala has a higher VAT of 5%. The GST rate is increased from the existing rate of around 2% to 3%. While most consumers would have to shell out additional tax of 1%, consumers in Kerala would benefit from the rate reduction.

Buying property
 

For under-construction property, there is a significant impact post GST. The existing tax rates are broadly around 6% in most States comprising of service tax and VAT (other than a few where the VAT rate is higher). Under GST the rate shall increase to 12%, with the ability of the builder to avail all input tax credits, resulting in reducing his cost which may be passed on to buyers by commensurate reduction in prices. However, this may not be possible for the builder immediately, especially where the builder has already procured the construction material. Hence, for properties currently under construction, the transition into GST would have consumers being charged with the additional tax without actual reduction in construction value.

Education and healthcare 
 

With respect to expenses like education and healthcare, the government has consciously kept both outside the ambit of GST broadly. Primary education and primary healthcare is exempt from GST. This would mean that while there is no tax to be paid on the amounts spent on these by the consumer, indirectly the tax burden is included in the fees as the service provider in these sectors would not be eligible for input tax credit. With the increase in rate of tax for certain goods or services procured by these institutions, the additional tax cost would be passed on to consumers as part of fee increases.

Buying a car
 

Finally, when it comes to buying a car, the GST rates have been more or less kept at the same rates. However, the transition into GST has created issues in maintaining the prices for cars manufactured before GST but sold after GST, given that excise duty on manufacture has already been paid but when the car is sold it will attract a higher GST rate as against a lower VAT rate from July onwards. This has led to discounts being offered on cars to clear inventory lying with dealers in the transition to GST.
 

Overall, one can say that the government has surely kept the consumer’s interest in mind while deciding the tax rates under GST, making the consumer aware by way of media outreach programs of the GST rates for commonly used products as well as bringing in provisions for anti-profiteering, which would act has a deterrent for businesses to increase prices in the guise of GST.

Kumal Wadha is Partner Indirect Tax at PwC.