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What is GST? Guide for Young Working Professionals

Jun 30, 2017 14:26 IST
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What is GST? Guide for Young Working Professionals
What is GST? Guide for Young Working Professionals

GST or the Goods and Services Tax will be implemented from mid-night tonight and it has almost everyone including professional CAs working round the clock to decode the phenomenon. Touted as the biggest tax reform in Indian Economy, the GST would certainly have a major impact upon youth of the country i.e. working professionals and millennials. While there are many ways in which one can find out GST rates or evaluate the impact of GST rate list on businesses, not many are talking about the impact it would have on the biggest demographic of the country i.e. young working professionals. If you have also been baffling with this very question, here are some insights that might help you out!

Why would GST impact Young Working Professionals the most?

India is a developing economy with the highest population of youth under 30 years of age. And when we talk about this chunk of population, it is of considerable importance as the economy relies on their productive capabilities. With the biggest tax reform of Indian that is predicted to affect the personal disposable income of the salaried employees, let us take a look at the various ways in which GST will impact the lives of people alike.

What is GST?

full form of gst

Source: vapandassociates.com

As per the recent mandate being issued by CBEC, Goods and Service Tax (GST) is said to be implemented from July 01, 2017 which will mark an end to all other indirect taxes such as service tax, VAT and many more. But before we analyse the impact of the GST reform on the life of salaried employees, let us first understand how this tax will be implemented on various goods and services.

Structure of GST

The tax reform has been simplified in a way that it will be implemented at three levels. It will take the form of “dual GST” which will be levied by both the central and state government. The proposed structure of GST is as under:

  1. Central GST (CGST) which will be levied by Centre
  2. State GST (SGST) Which will be levied by State
  3. Integrated GST (IGST) – which will be levied by Central Government on inter-State supply of goods and services.

It should also be noted that the GST tax rates are fixed at 5%, 12%, 18%, and 28%.

Taxes Abolished under GST Regime

There is much ado about the removal of taxes and single tax taking over others. Still we do not know which taxes are being curtailed at which level. The taxes enlisted below will help you understand the taxes which you are paying at present and will be free from since 1st July 2017 onwards. Also, it is important to understand if the bearing of paying multiple taxes is burning a hole on your pocket or paying a single tax is a cause of concern.

Taxes which are subsumed under GST are as follows:

Central Indirect Taxes & Levies

Central Excise Duty

Additional Excise Duties

Excise Duty levied under the Medicinal Preparations (Excise Duties) Act, 1955

Service Tax

Additional Customs Duty (CVD)

Special Additional Duty of Customs

Central Surcharge and Cess

State Indirect Taxes & Levies

VAT / Sales Tax

Entertainment tax (other than the tax levied by local bodies)

Central Sales Tax

Octroi and Entry Tax

Purchase Tax

Luxury Tax

Taxes on Lottery

Betting and Gambling

State Cesses and Surcharges

The taxes enlisted above are the ones which you pay before buying a product or service. So, even if you are buying something from the market, it is not tax free. GST is making the processes simplified by imposing a single tax system in the market so that people do not end up paying taxes at every stage and level. 

GST Tax Rates: What is Expensive and what is Cheaper under GST?

For salaried employees and others as well, the majority chunk of their personal disposable income is spent on the items listed below. For them, it is important to manage their monthly budget as the expenses are never ending but the income remains limited.

Even if GST is getting implemented in the mid-year term, the salaried would remain the same irrespective of the positive or negative changes in the prices of the goods and services that are rendered on regular basis.

List of a few items which are often being consumed by common man and the impact on the price change is mentioned below. Take a look at the items and plan your monthly budget accordingly.

Product or service

Pre-GST tax rate

Post-GST tax rate

Impact on

Tax Rate

Furniture

26%

28%

Up

Laptop

14-15%

18%

Up

Mobile phones

6%

18%

Up

Mobile phone bills

15%

18%

Up

Perfumes

26%

28%

Up

Beauty and make-up products

26%

28%

Up

Aerated drinks

28-34%

40% (28% GST+12% additional cess)

Up

Instant Coffee

26%

28%

Up

Five-star restaurants

18%

28%

Up

Hotels with room rent above Rs5,000

19%

28%

Up

Air travel (business class)

9%

12%

Up

Mid-segment cars

36-40%

43%

Up

Tea

6%

5%

Down

Restaurants (air-conditioned)

22%

18%

Down

Soap

27.70%

18%

Down

Ola, Uber and other cab aggregators

6%

5%

Down

Air travel (economy class)

6%

5%

Down

Stationary (paper & pens)

11-27%

12-18%

Down

Movies & entertainment

Depends on the state due to local-body taxes

Branded clothes

Unclear as of now

Alcohol

Not included in GST

Gym

Exempt from GST (healthcare)

You can find the rates of various items that are not mentioned in the list after the GST implementation here

GST Impact on Salaried Employees

Salaried employees might have to face a burnt out of the tax reforms at the initial stages. All their money management skills will be put to test to accommodate with the GST reform. For an instance if you hold a post-paid connection then service tax rates which is at present decided by the state will no longer remain the same. Your phone bill might see escalation of taxes after GST implementation. As per the GST a single tax of 18 per cent shun the current tax of 15 per cent leading to more money shelling out from your pocket. You will end up paying Rs. 1180/- as against Rs. 1150/- for a phone bill of Rs. 1000/-.

On the contrary, it also favours this class as from now onwards, there will be no other liability such as entertainment tax, luxury tax, service tax, VAT, etc.

meaning of gst

Source: timesofindia.com

In a nutshell, if we see the list of the items above and many more in the PDF, it is evident that GST one hand has increased expenses on items such as restaurants, movies, shopping, consulting, construction, etc. will increase but on the other hand expenses on household items will decrease.

So managing the household front will become pretty manageable. But the aspirations of the ‘Urban Poor’ class will see a dip in the coming days where they will again think twice before splurging money on entertainment and luxury.

GST & Economic Growth

While the salaried employees might be worried about the implications of GST on their spending, here there is good news as well. The GST will cause a trouble for some at the initial stages until we again learn to manage our expenses but on the contrary the overall impact of GST will be positive on the growth of the economy.

The trickledown effect will be evident on various aspects of economic growth. Some of the areas which will receive the direct benefits are:

  1. Increase in GDP from 1% to 2%
  2. Increase in employment and also in the production
  3. Increase in the revenue of Government and reduce the fiscal deficit

It can be said that the overall impact of GST will witness utilitarian benefits for the masses of India and will also enhance the income-expense ratio in the long-run.

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