How GST Will Impact Your Household Budget?

One of the big worries in the post-GST scenario is how the GST will impact your household budget. Remember, there are some key components pertaining to your household budget that are going to be impacted. Your household budget includes spending on food, clothes, rentals, EMIs, education, fuel and future planning. The GST is likely to impact each of these items in some ways. Here are some key takeaways from the point of view of your household budget…

• But, what happens to inflation?

As a manager of the household budget, your primary worry is inflation. Inflation is the rate at which the cost of living becomes more expensive and therefore it is an important component of your short-term budget planning as well as your long term financial plan. Normally, GST has been inflationary in most economies where it has been introduced. Australia and Malaysia are classic examples where the inflation shot up in the initial stages but eventually settled at a more benign level. The good news for household budgets is that the government has tried to keep food products in the range of 0-5% GST while common use toiletries have been kept around the average rate of 18%. This will ensure the household budget is not negatively impacted. Remember; when household budgets go for a toss, there are larger political and social implications and the government would be loath to such experiments with less than 2 years to go for the next general elections. There are some services like telecom services that will become more expensive, but the overall impact on your household budget is unlikely to be very substantial. That is, of course, assuming that your monthly budget does not allocate too much spending on high-end products each month. Such products, under the GST, will attract the peak rate of tax and you see these prices going up. Of course, if you are buying textiles under Rs.1000/- you get the benefit of concessional rates of GST.

• Which budget items will benefit and which will lose out?

Within your household budget, there are likely to be some obvious gainers and some obvious losers. For example, the GST for most of the popular food items will be in the range of 0-5%. That will continue to keep food inflation low, as is visible in the last few months. Outside of the GST, the good monsoon is likely to keep food prices tepid during the year. Food budgets are unlikely to go up; in fact it is more likely that it may actually go down. Your life style bills are likely to go up post GST. For example, be it air travel or train travel; travelling by premium classes will mean you pay higher rate of GST compared to economy classes. Your mobile bill and monthly DTH bills will get costlier as the rate of GST will take the service tax from 15% to 18%. However, most telecom companies have been pampering customers with freebies and additional discounts hence the overall impact may not be really palpable.

• Two things you actually need to know about impact of GST…

Many of us tend to believe that GST is all about the rates alone. In reality it is also about the seamless input tax credits that they get. So while your telecom company or your DTH provider will charge you 18% GST instead of 15% service tax, remember also tell them that they need to pass back the benefits of input tax credits to the end customer. From your household budget point of view, your service provider will always be happy to provide you that extra bit if you appear to be more knowledgeable. Secondly, there is an important anti-profiteering clause that has been inserted by the GST Council. Under this clause, any cut in tax rate by the GST Council will have to be directly passed on to the end customer. Failure to pass on will actually invite penal action for the service provider. As a consumer with a household budget, these are two things you need to be perfectly aware of to protect your interest and in the process your household budget too.

• Your investment and insurance costs are likely to go up…

Your household budget is not just about expenses but also about savings. You need to address this issue in two ways. Firstly, you need to understand that your service costs in terms of insurance, equity transactions, MF costs will go up post-GST. Hence you need to understand to what extent the savings from your household expense budget can compensate for that. Secondly, you need to tweak your budget to make it more sensible in the post-GST scenario. Why pay more for a premium product and also pay a higher GST when you can get similar value in a lower priced product with much lower GST. Textiles are a classic example. Toiletries could be another case in point. You need to tweak your household budget smartly to make it more meaningful in the post-GST scenario.