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sagar.modi11
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Tax on financial services transactions will rise from the current 15% to 18% as the goods and services tax (GST) kicks in on 1 July, making them marginally costlier.

The new GST rates will apply to some banking transactions, mutual funds, insurance and stock market which were earlier taxed at 15% including Krishi Kalyan cess and Swachh Bharat cess.

GST applies to all services where this a supply for consideration. So, in banking transactions such as credit card payments, fund transfer, ATM transactions, processing fees on loans etc., where the banks are levying charges, increased tax rates would apply. This would have a slight inflationary impact.

The Central Board of Excise and Customs (CBEC), the nodal body for indirect taxes, would issue notifications clarifying exemptions from the flat 18% tax rate.

Interest on fixed deposits, bank account deposits etc., which do not attract a charge will remain so under the new regime. The government on 19 May finalized the tax rates for the services sector.

90% of the services were placed in the 18% bracket, which in absolute terms is a marginal increase, but is expected to reduce complexity in transaction and improve ease in availing of input credit.

Out of all services, 63 have been put in a negative list, which are exempt from tax. In 2016-17, service tax collection jumped to Rs 2.54 trillion from Rs 2.11 trillion a year ago.

Similarly, in mutual funds, the total expense ratio (TER) charged for managing funds and distributor commissions etc., would increase by 4-5 basis points.

TER for mutual funds varies between 1.25% and 2.75%.

From India, Ahmadabad
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