Understanding The Impact Of India’s New GST On Service Providers

Launched from July 1, 2017, the Goods and Service tax or the GST is said to be the biggest tax reform in the history of India. This new tax is a deviation from the current varying taxes that are applied to goods and various services in the country. It is being said by economic experts that the GST will simplify the tax structure thus making it easier to do business and also ensure greater compliance to tax rules.

Four Slabs Of GST Rates

Under the GST, there will be four slabs of GST rates applicable for services. This includes different services such as business services, travel services, financial services and the hotel industry.

The four slabs comprise of 5 %, 12 %, 18 % and 28 % tax that is to be applied. This is similar to the tax structure for goods. Services contribute to more than half of India’s earnings and it is being said that the move might create an adverse impact on the service industry. However, there are certain services and certain bands of services that are exempt from tax. For example, education and healthcare are exempt from GST. This move is being hailed as a very populist move by the general public and is a step in the right direction.

However, the hotel industry is reeling under higher tax rates. Luxury services such as business travel will attract higher tax rates. Financial services under GST will be taxed at 18 %. Five star hotels are the most impacted as they are in the highest slab of 28%. This is likely to have a big impact on their business.

As the telecom industry is being taxed at 18%, you can expect you phone bills to rise up. Services offered by banks are also likely to become more expensive. Recent years have seen a huge surge in domestic air travel. However, as tax on air tickets has gone up, this might have an impact on air travel.

Interestingly, e-commerce businesses will be taxed at a very nominal figure of 1%. The good news is that buying a car will now be cheaper now. Home appliances are also likely to get cheaper under the new GST regime. Freelancers will now be taxed as service providers and they will be able to easily file their taxes online using the GST portal.

Hence, while GST is being promised as a one nation, one tax initiative, it is likely to have different impact on different types of services. There is certain confusion regarding the various rates to be applied as per the four slabs of GST rates. However, it is expected that gradually this will give way to clarity and overall system that benefits the common man.