From insurance premium to ATM transaction, banking will be expensive under GST

Ahead of the July 1 roll out of the Goods and Services Tax (GST), the government has repeatedly stated that the tax incidence on most goods and services will remain the same. That, if it does not come down. However, reports have emerged from various sectors that have raised concerns contrary to this claim.

One such area is of the financial services offered by banks and insurancecompanies, which are expected to pinch your pockets more under GST. Financial service charges include service charges on ATM transactions and Credit and Debit Cards, insurance premiums, EMI (Easy Monthly Installment) etc.

Under GST, financial services have been put under the 18 per cent slab, whereas currently customers pay 15 per cent service tax for them. Thus, a straight 3 per cent hike in your bills may be expected.

For example, if your annual premium for a Rs 1 crore term plan works out to Rs 25,000, GST will result in a tax burden of Rs 4,500, compared to Rs 3,750 currently.

Similarly, State Bank of India (SBI) charges Rs 50 plus service tax (15 per cent), for each withdrawal at banks beyond four free transactions. So, currently for withdrawing Rs 10,000, you need to pay a sum of Rs 1,550 ( Rs 1,500 as service charge plus Rs 50). Under GST, this transaction will attract a service charge of Rs 1,850.

Banks and insurance companies have already started to send out messages to its customers warning about the hike. SBI Card has sent SMS to its customers alerting about the higher incidence of tax.

"Important: The Government of India proposes to implement the GST which is likely to be effective from July 1, 2017. Consequently, the existing service tax rate of 15 per cent shall be replaced by a GST rate of 18 per cent," the SMS sent by SBI read.

An SBI official confirmed the same.

Banks like Standard Chartered and HDFC are also sending messages related to GST to their customers.

ICICI Prudential Life Insurance, in email messages to its customers, said premium payable on term policy and fund management charges on a Unit Linked Insurance Policy will attract 18 per cent GST post implementation of the new indirect tax regime.

GST is touted as the single biggest tax reform since India's independence in 1947 and is expected to add 2 per cent to India's GDP (gross domestic product). It aims to subsume the various central and state taxes that are currently levied on goods and services, bringing India under a uniform tax regime.

GST is set to be launched on the midnight of June 30 and July 1 by the President Pranab Mukherjee. Prime Minister Narendra Modi, Vice President Hamid Ansari, Lok Sabha speaker Sumitra Mahajan, members of Parliament and GST councils and chief ministers of all states have also been invited. Former Prime Ministers Manmohan Singh and H D Deve Gowda are also expected to grace the occasion.

(With inputs from agencies)