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| May 26, 2017 |
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Impact 
The Goods and Services Tax (GST), India’s much-awaited reform, will come into effect on July 01, 2017. There’s consensus that the implementation of GST won’t stoke inflation; well, for now, it just remains rhetoric. The situation on the ground could well be different.
As anticipated under GST, the tax on manufactured goods will drop as against to what is being charged under the current regime. However, Services are likely to become dearer. From the position of India’s GDP on the dominance of services, household budgets are likely to get disturbed. And this looks almost certain, especially considering the unfair treatment GST will give to cooperative housing societies while dealing with third parties. As per the schedule of GST rates approved by the GST Council the services, “Upto an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex.”
However, if the amount exceeds Rs 5,000, the applicable tax rate under GST will be 18%--higher than 15% charged under the current regime. So, if your housing maintenance bills are likely to increase, prepare that household budget to include this additional outgo.
Moreover, the annual maintenance collection above Rs 20 lakh would attract tax at 18% under GST regime.
Advocate Vinod Sampat, who’s a consultant to cooperative housing societies, told DNA Money in an interview that, “The rules are clear, the 18% levy is not applicable on municipal tax, property tax, water bill, non-agricultural land tax, etc. Even sinking fund is excluded as it is a fund for future. However, repair fund attracts 18% levy."
Speaking about the tax applicable on annual collection more than Rs 20 lakh, Mr Sampat said, “Such large societies can split their buildings into separate societies, which will help in not touching the threshold limit of Rs 20 lakh. It's a one-time move for a permanent solution."
Housing society activists are not happy though. The reaction of Mr Chandrashekhar Prabhu—one such activist, opined, "Housing societies are not for making profit. I disagree with the idea and rule of levying taxes on co-operative housing societies. It is a retrograde measure."
The GST Council has zeroed on 4 tax slabs for services—5%-12%-18%-28%. And it’s noteworthy that services such as education and healthcare would be exempted. Interestingly, transportation services such as air travel by the economy class, A/C cab rides will cost you less under GST.
It seems the Government has tried to do the balancing act. However, what’s really challenging is ensuring that the manufacturers of goods and service providers don’t take undue advantage of the implementation of GST and hike prices. Some manufacturing companies have already started increasing prices. While the Government may claim the implementation of GST won’t be inflationary, what remains to be seen is how it monitors prices.
With GST implementation in sight, the job is still half done.
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Impact
While GST is all set to be implemented in little over one month’s time, the tax rates on some important items are yet to be decided, this includes—cigarettes, biddies, footwear, bio-diesel, agricultural implements and gold. These are considered to be sensitive commodities which may have socio-economic repercussions if taxed inappropriately. The single voice of council members on a majority of GST rate issues seems to have multiple refractions on taxes of these sensitive commodities. The GST Council will meet on June 03, 2017 to take the final call.
The All India Gem & Jewellery Trade Federation (GJF) has been batting for the lower tax rate. Mr Nitin Khandelwal, chairman of GJF “At present, gold attracts an excise duty of 1 per cent and a VAT of 1 per cent apart from a 10 per cent import duty. Kerala is asking for a 5 per cent GST as it is the only state in the country that has put a 5 per cent VAT on gold. But the trade wants 1.25 per cent GST on gold as a higher rate will hamper growth and will result in a drop in tax compliance by the gold trade.”
He also argued that “In the past two decades, the gold price has moved up by almost five times. Nobody complained about this and here you have a 5% levy and such a hullabaloo, which is hard to digest.”
Mr Thomas Isaac, the Finance Minister of Kerala, said, “A 5% rate was agreed upon by most states but Maharashtra, Gujarat and Tamil Nadu wanted a lower tax.” It’s noteworthy that, close to 65% of India’s gold demand comes from southern and western India put together. Can you imagine how the discussion at council meetings about this hot topic must’ve been conducted?
On this backdrop, this uncertainty was much anticipated and has led to tremendous speculation about outcomes. While gold buyers are keeping their fingers crossed hoping that GST won’t levy any higher tax on gold purchases. Goldsmiths and bullion traders have gone a step ahead with some heavy stocking in the second-half of the Financial Year (FY) 2016-17. By doing this, they have tried to cover up for the possible slack in demand which could fall on account of potentially higher taxes. So don’t be surprised if India imports lesser gold this year. |
Impact
The confidence you have in your potential often decides how much confidence and trust others will have in you. If you are not confident about your knowledge, expertise and competence, then you would rarely find others showing faith in your ideas and abilities. However for a very long time, this proved wrong in the case of Indian equity markets.
For decades, Indians didn’t show much trust in their own market, but Foreign Institutional Investors (FIIs) trusted Indian equities unequivocally and earned huge profits in India. Barring the success stories of a handful savvy investors, Indian Investors have seen their markets going up despite their half-hearted participation. Less than 10% of domestic household savings are invested in equity markets even after two decades of liberalisation. However, we have now started witnessing the trend weakening.
This came to fore one more time in April 2017 when domestic institutional investors saved Indian markets from the shocks of a heavy FII selling. Perhaps to your surprise, net inflows by Indian mutual fund industry exceeded those of FIIs in April by over 2½ times. Interestingly, August 2016 onwards, mutual fund inflows haven’t turned negative even once on a monthly basis. After the Modi-led-NDA Government coming to power in May 2014, FIIs invested Rs 1,53,894 crores on cumulative basis whereas mutual funds poured in Rs 1,78,452 crores over the same time period.
To read more about this story and Personal FN’s views over it, please click here.
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Impact
“Expect Nifty to touch 11,180 by Q3 2018”
“2,000-point Nifty rally in next 12-16 months”
“Nifty may touch 13,000 in three years”
“Sensex to touch 45k by 2020”
“Sensex to touch 54,000 by 2018”
We can go on and on, but you get the drift right?
Over the past quarter, these headlines have cropped up quoting experts, research houses, and brokerage firms. In a bull market rally, investors are not short of optimism. This is what takes the market higher and at times, command obscure valuations.
For an average investor, it becomes difficult to discern the truth in the numbers, especially when those numbers get more outlandish and difficult to conceive. Though there are compelling reasons why the market could keep heading higher, investors should start being more cautious rather than excited.
Do not rely on economic, stock market, or interest rate forecasts to underpin your investment decisions. With experts and analysts futzing with their Sensex and Nifty targets, an over-reaction is imminent. Herding and other behavioural factors come into play. It won’t be too long before fear strikes.
Momentum is fickle, and given our herd mentality, the market can turn on its head. We don’t know when, but when it does happen, your portfolio should be in a position to keep afloat during the turbulence.
To read more about this story and Personal FN’s views over it, please click here.
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The RBI seems to be averse to “name and shame” policy, which is why it’s opposing the idea of making the list of wilful defaulters’ public. In 2015, the Supreme Court had challenged this stance of the RBI, and ordered to share this information in the public domain. However, the RBI is sticking to its stance, and this is puzzling considering that its fiduciary is not to please borrowers and maintain their secrecy, but to work in the interest of the public. Change of guard at RBI apparently hasn’t brought about a change of heart. The climax of this story would be worth tracking.
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10 Mistakes To Avoid While Investing In Mutual Funds
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3 Easy Steps To Link Your Aadhaar With PAN Card
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Haircut: A haircut is the difference between prices at which a market maker can buy and sell a security. The term comes from the fact that market makers can trade at such a thin spread.
A haircut can also refer to the percentage by which an asset's market value is reduced for the purpose of calculating capital requirement, margin and collateral levels. |
Quote: "Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this."- Dave Ramsey
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