{"id":4653,"date":"2015-03-03T05:22:08","date_gmt":"2015-03-03T05:22:08","guid":{"rendered":"https:\/\/securenow.in\/blog\/?p=4653"},"modified":"2024-04-08T10:23:29","modified_gmt":"2024-04-08T10:23:29","slug":"financial-instruments-likely-cost","status":"publish","type":"post","link":"https:\/\/securenow.in\/insuropedia\/financial-instruments-likely-cost\/","title":{"rendered":"Financial instruments likely to cost more"},"content":{"rendered":"
<\/div>

Published in Mint on Mar 02 2015<\/p>\n

Apart from mobile phone and restaurant bills, cost of financial products, too, will go up marginally due to the increase in effective service tax rate from 12.36% to 14%. The Finance Bill states: \u201cIn the new service tax rate the education cess and secondary and higher education cess will be subsumed in the revised rate of service tax. Hence, the effective increase in service tax rate will be from existing rate of 12.36% (inclusive of cesses) to 14%.\u201d
\nThe new service tax rate will come into effect from a date to be notified by the central government after the enactment of the Finance Bill, 2015. Till the time the revised rate comes into effect, the levy of education cess and secondary and higher education cess will continue to be levied in service tax.
\nThe budget also spoke about Swachh Bharat cess. The Finance Bill states: \u201cAn enabling provision is being made to empower the central government to impose a Swachh Bharat cess on all or any of the taxable services at a rate of 2% of the value of such taxable services with the objective of financing and promoting Swachh Bharat initiatives.\u201d Inclusion of this cess will further increase your cost. \u201cThe government indicated a Swachh Bharat cess of another 2% on services to be notified. This will result in the effective service tax rate of 16% when notified,\u201d said Rakesh Nangia, chartered accountant and managing partner, Nangia & Co.
\nLet\u2019s take a look at what would be the effect of the increase in service tax on financial products and services.<\/p>\n

\n

\"Paying<\/p>\n

<\/div>\n<\/div>\n

Banking<\/b>
\nAs per government guidelines, a bank is liable to pay service tax on all income other than income from loans and advances. Since banking products fall under the service tax net, the cost of some of the services that you use will go up marginally.
\nSome banks include the service tax in the charges that they levy while others charge service tax on the fees and charges. For instance, cost of services such as loan processing and ATM is set to go up marginally. Usually, banks charge Rs.<\/span>20 plus applicable service tax. That amount will go up from 12.36% to 14%.
\n\u201cPricing has been under pressure for banks and they have been dependent on retail consumers. Some may pass on the service tax to consumers while some will absorb it. It will also depend on how fees and charges are structured,\u201d said Abhishek Bhattacharya, associate director financial institutions, India Rating & Research Pvt. Ltd.
\nInsurance<\/b>
\nLike banking products, your life as well as health insurance products, too, attract service tax. However, the way it is calculated differs across plans. For instance, health insurance<\/a> and term insurance plans<\/a> will attract 14% service tax (from 12.36% now). But, in case of traditional plans, composite tax will be applicable. \u201cThere has been a corresponding increase in composition rate for life insurance service. For instance, life insurance<\/a> services will attract a composite service tax rate of 3.5% of premium in first year and 1.75% premium in subsequent years. Currently, it is 3% for first year and 1.5% for subsequent years,\u201d said Nangia.
\nDoes it mean that the premium amount will go up? Yes, as \u201cyou will see a direct increase in the cost for premium that you pay for your health and life insurance. However, the impact will be marginal,\u201d said Kapil Mehta, managing director, SecureNow Insurance Broker Pvt. Ltd.
\nMutual funds<\/b>
\nThe distribution of mutual fund (MF) will also attract service tax. \u201cThe earlier exemption for agents or distributors has been withdrawn and will be chargeable under reverse charge provisions. Hence, these services will be taxable in the hand of asset management companies (AMCs),\u201d said Sachin Menon, chief operating officer-tax and head of indirect tax at KPMG.
\nMF investors will not be affected, but distributors will be. \u201cSince the government is going to use reverse charge provision, though the tax will be paid by the AMC, the distributors will have to absorb the cost in the commission. For instance, for every Rs.<\/span>100 that a distributor received as commission, Rs.<\/span>14 will be deducted by the AMC. This comes at a time when there is talk about capping the upfront commission,\u201d said Srikanth Meenakshi, founder, Fundsindia.com.
\nFund houses agree that distributors will take a hit. \u201cWe are still discussing how this will flow, but if the service tax is levied for MF distributors, going by past experience, it is likely to be included in trail commission itself. This will hurt distribution margins, given that there is a proposal to cap distributor commissions,\u201d said the chief executive officer of an AMC.
\nForeign exchange<\/b>
\nForeign exchange (forex) attracts service tax, and the increased rates will affect consumers. The service tax on forex is calculated on a composite basis. \u201cThere will be a corresponding increase in services of buying and selling of foreign exchange including money changing. The composite service tax on gross money exchanged up to Rs.<\/span>1 lakh will be 0.14% up to a maximum of Rs.<\/span>35. Gross amount exchanged from Rs.<\/span>1 lakh up to Rs.<\/span>10 lakh will have a composite service tax rate of Rs.<\/span>140 plus 0.07% of the money exchanged. For gross amounts above Rs.<\/span>10 lakh, the composite service tax rate will be Rs.<\/span>770 plus 0.014% of amount exchanged but up to a maximum of Rs.<\/span>7,000,\u201d said Nangia. At present, for gross amount up to Rs.<\/span>1 lakh, it is 0.12% up to a maximum of Rs.<\/span>30.
\nThe change in service tax rates will affect investors as well as distributors. As of now, the Swachh Bharat cess has not been included. In case this comes into effect and is applied on financial services as well, the overall cost will only go up further, though marginally.
\nThe changes are not applicable immediately but only once the Finance Bill is passed, and the effective date is communicated, which is likely to be 1 April 2015.<\/p>\n","protected":false},"excerpt":{"rendered":"

Published in Mint on Mar 02 2015 Apart from mobile phone and restaurant bills, cost of financial products, too, will go up marginally due to the increase in effective service tax rate from 12.36% to 14%. The Finance Bill states: \u201cIn the new service tax rate the education cess and secondary and higher education cess […]<\/p>\n","protected":false},"author":4,"featured_media":2599,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_lmt_disableupdate":"no","_lmt_disable":"no","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[410,319],"tags":[36,42,80,405,411,439,456,457,458,1524],"class_list":["post-4653","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-media-coverage","category-media","tag-health-insurance","tag-life-insurance","tag-insurance","tag-broker","tag-securenow","tag-banking","tag-foreign-exchange","tag-mutual-funds","tag-tax","tag-term-insurance-plans"],"acf":[],"modified_by":"Chetan Sharma","_links":{"self":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/4653","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/comments?post=4653"}],"version-history":[{"count":7,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/4653\/revisions"}],"predecessor-version":[{"id":29267,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/4653\/revisions\/29267"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/media?parent=4653"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/categories?post=4653"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/tags?post=4653"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}