Author Archives: Aristotle Consultancy

GST impact: Insurance premium, bank charges to increase

The impending implementation of GST would undoubtedly impact one’s personal finances especially when it comes to financial services, albeit marginally. From the present rate of 15 percent, the GST on banking, insurance and investments such as real estate, mutual funds will see a hike of 3 percent as the GST will now be 18 percent on them.

Let’s see how each of them gets impacted.

GST and Insurance

Primarily, there are three major kinds of life insurance products – Term insurance plans, Ulips and Endowments (including money back). The applicability of service tax (in the current format) on their premium is not similar in all three of them.

The premium paid in life insurance policies represents two portions – risk coverage and savings. The service tax is only on the risk portion of the premium and not on savings portion.

As per the GST rules, the value of services (on which GST is to be imposed) in relation to life insurance business shall be:

(a) The gross premium reduced by the amount allocated for investment, or savings on behalf of the policy holder.

(b) In case of single premium annuity policies, ten per cent of single premium charged from the policy holder.

(c) In all other cases, 25 per cent of the premium in the first year and 12.5 cent of the premium in subsequent years. So, if the premium of an endowment plan is Rs 100, the GST of 18 percent will be applicable on the 25 percent of the premium i.e. on Rs 25, so, Rs 4.5 will be the GST amount.

(d) If the entire premium paid by the policy holder is only towards the risk cover in life insurance such as in term insurance plans, the GST of 18 percent will be on the entire premium.

Therefore, the immediate impact of GST would be the higher outgo (premium plus GST) in term and endowment plans, due to the increase in rate of tax on insurance following implementation of the GST. “In theory, this could mean an increase of 3% in premium from the existing applicable premium effective from 1st July 2017, across life, health and general insurance, however, some of this should be offset if tax on services availed by the industry are allowed to be taken into account to decrease insurance.

The policyholders may stand to benefit only if the insurance companies are allowed the benefit of input tax credit. “This unfortunately is not clear as of yet given the complexity of the state/centre structure of GST, this might drive some confusion as well as higher compliance and administrative costs for insurers. If these are not passed on to customers, prices might either go up, or stay low but will affect the market’s solvency and financial health,” says Verillaud.


Similar will be the impact on general insurance such as car, health and other non-life policies i.e. service tax (when replaced by GST) will increase by 3 percent of the premium amount. This would increase total outgo (premium plus tax).

Impact : : The overall impact could be nominal but once implemented, both, existing and new policyholders will have to bear the additional cost. If the current premium of a term plan is Rs 10,000, (excluding the service tax of 15 percent) the GST impact will up the premium including tax by Rs 300 i.e from Rs 11,500 to Rs 11,800. While, comparing premium especially of term plans, make sure you are looking at premiums including or excluding GST for all the insurers. Nothing changes in the selection process as the GST impact will be same across insurers. Stick to a proper selection process while getting the right insurance policy.

GST and real estate

Real estate sector is marred with plethora of taxes both at the state and central level. GST hopefully will put in a more streamlined tax structure in place. “The heavily taxed real estate sector welcomes a single stable 12% GST rate, inclusive of the value of land and with full input tax credits,” says Rajeev Talwar, Chairman, NAREDCO.

But, will the home prices be lower than they are now in the post GST era? “NAREDCO is of the view that the actual tax incidence under GST would match or be lower than the existing multiple indirect taxes on the sector. The GST rate for work contracts which will also be offset by input credits, will provide for a seamless and simplified tax policy”, says Talwar.

However, it seems arriving at a conclusion regarding price impact could be a bit premature. “The GST rate is not the only important factor. The abatement rules as applicable under the service tax regime and the input tax credit facility for developers will determine if the effective tax incidence on real estate is lower or higher under GST,” says Anuj Puri, chairman of JLL Residential.

According to Puri, here’s why it will take time to conclude if the GST is tax neutral or tax adverse for the real state sector, ““Effectively, the composition scheme allowing for abatement against cost of land to the extent of 75% of the house cost for residential units priced under Rs 1 crore and less than 2000 sq. ft. makes the effective rate at 3.75%. In other cases, the abatement goes down to 70%, making the effective rate at 4%. This will go a long way in determining whether GST is tax neutral or tax adverse for real estate”.

The situation may not be same in the luxury segment. Surendra Hiranandani, Chairman & MD, House of Hiranandani says, “In the case of a premium development, the entire input tax credit is not sufficient to bring down the fresh tax liability to nil because of the taxes paid on other expenditures, having negligible impact.”

The actual impact may be few months away after the implementation of GST. “More clarity will prevail once the GST gets implemented and the government clears its stand on the abatement available for the land cost for calculating service tax on under-construction projects.” says Hiranandani .

GST and banking

Transaction fees in financial services are likely to increase as the government has put these under the 18% tax bracket in the new GST regime. These services were so far taxed at 15% and the hike in the tax rate means that individuals will have to pay Rs 3 more for every Rs 100 paid as charges/fees for banking transactions. It may be mentioned that recently several banks starting with SBI introduced or increased service charges for multiple banking transactions including cash withdrawals exceeding a certain number of times in a month.

GST and mutual funds

The impact of GST on the returns of mutual funds will be largely marginal. The levy of GST will be on the total expense ratio (TER) of the mutual fund. The TER, commonly known as expense ratio of mutual fund houses, will also go up by 3 per cent. Expense ratio is the measure of the cost incurred by an investment company to operate its mutual fund.

As per the SEBI guidelines, AMC’s can levy charge within the limits prescribed under the regulations. So, if the limit is say, 2.25 percent of total assets under management, the service tax of 15 percent has to be within it.

Impact : Let’s assume the return on equity (market return) is 15 percent when the scheme’s TER is 2.25 (regular scheme) including the service tax. This means, TER without tax is 1.96. Now, to maintain the same TER (as it is capped), at a higher GST rate of 18 percent, the TER has to be lower at 1.91 percent. The AMC’s may have to absorb this marginal difference unless SEBI increases the TER cap.


Even though the hike will be nominal, taken together for all the insurance covers, the increase in the outflow could be something to account for by many policyholders. For someone paying annual premium for car, household, health, term plan, personal accident cover, a total of say Rs 50,000 a year could see a jump in premium outflow by Rs. 1,500 a year, with no additional risk coverage or benefits. The actual impact of GST on financial services including banking, insurance will however, be known only once it gets implemented. As a policyholder and an investor, no change, as of now, is required to be made in advance when it comes to GST.

Source – ET Retail

A quick guide to India GST rates in 2017

The GST Council, the apex decision-making body for the new tax, has fixed the tax framework under the Goods and Services Tax (GST) which is to be rolled out this July 1. Tax rates have been finalised for 1,211 items with a majority of items being kept under the 18 per cent slab.

Here’s a complete list of GST rate card.

Nil rate (0%):
No tax will be imposed on items like fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom etc.

Items such as fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats will attract tax of 5 percent.

Frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, and cellphones will be under 12 per cent tax slab.

Most items are under this tax slab which include flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors.


Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, and yachts will attract 28 per cent tax – the highest under GST system.

Source – ET Retail

Accounting Basics For Indian Startups: Compliances, Valuation And A Lot More

One must always record daily transactions on a real time basis…

Keeping a real time track of your transactions is a must as the last thing you want is to be stuck backtracking all your transactions that haven’t been recorded. It raises the scope for error and missing out on a single transaction could result in all your efforts going in vain.

Also, when you look at moving to an accounting system, you need to have enough data to feed into the software. There are several cloud based softwares such as Quickbooks that are very economical and have a great, user-friendly interface. If you have your excel sheets ready, a few clicks is all it takes to import them into Quickbooks.

Q: How To Stay Aware Of All The Compliances You Need To Follow?

You must have prior knowledge of all the compliances you need to follow. In order to do this, you must:

Create a due date chart of all the various compliances and follow that chart diligently.
Don’t just follow it on the due date itself, set reminders ten days in advance that let you know that you have a certain compliance coming up.
Implement monthly reporting.

You may not be consider yourself knowledgeable enough to maintain a balance sheet and profit and loss sheet but basic things like a revenue sheet and an expense sheet can definitely be managed without much effort.

Q: How To Find Out About All The Compliances You Need To Adhere To?

Well, in order to achieve this you’ll need to perfectly understand your sector. You need to consider the compliances you need to adhere to, both at the current stage you’re in as well as when you grow and scale further in the future. For example, the best way to break it down is to think that if you were to be the number 1 in your sector, what all compliances would come into play and at what stage.

One trap that you mustn’t get stuck in is, use advice given from a professional who is an uncle or a family member to counter what your accountant is telling you. No doubt, it’s always great to get an opinion from other people. However, the uncle or family member probably won’t have as much exposure or knowledge about the startup ecosystem and hence, their opinions maybe slightly skewed and inaccurate. It’s always advisable to find someone who is aware of your sector/industry.

Q: Why Having A Revenue Model From Day 1 Is Necessary?

There are plenty of startups that have gotten funded but still have a very flawed revenue model. Entrepreneurs must have their revenue model in place from day one so that by the time they start seeking funding, they have nothing to worry about on the finance/accounting front. Things like how the whole cash flow, fund flow and revenue model is going to work must be figured out at the earliest. So often you see a company where the founder has tried to manage the finances on his own as opposed to outsourcing it or seeking help. The latter always has an edge and the option of scalability, unless of course one of the founders is an accounting wiz.

Another thing to keep in mind is that this is India, not Singapore or the US.

In India, just getting your company name registered could take days on end. Even getting your company incorporated involves so many things that you wouldn’t know about unless you’re an expert. Hence, our advice would be that even if you do have the basic knowledge, always get an expert on board. In your startup’s growth cycle, that particular resource may not be with you throughout your journey but getting that updation from that resource will be of great help.

Q: How Accounting Affects Your Valuation?

Valuation is something every founder is obsessed with and rightfully so. Finance and accounting plays a large role here too, as, in order to have a justifiable valuation you need to have your numbers in place or else the investor isn’t even going to entertain you and your projections. The only way you can create a valuation report that an investor won’t shun off is by having all your numbers in place and this entirely depends on your finance/accounts team. In financial terms you have something called a DCF (Discounted Cash Flow) which you use in order to derive an accurate valuation. You must keep updating these numbers real time as going back to create this report at the end of the month could lead to an inaccurate DCF.

Even if you don’t have any knowledge of compliances and of what debit and credit are, having knowledge of those revenue numbers and the model is very important for an entrepreneur. As this will help keep you aware of:

The problem you’re solving with your product and how viable a product it is.
How much money you have in your kitty and how much more is going to come in.
Where are you going to spend your money and how; are you going to register as a proprietor, partnership or Pvt. Ltd. Company.
At what stage will you need more money.
Under the given resources, can you hire a resource to look at your accounts. If not, till what point can you manage on your own.

Hire An Accountant From Day 1!

Which of the two scenarios would you rather be in. One, where you have an accountant from day one, who knows your finances in and out and you approach an investor with him by your side to back you on anything related to your accounts and finances. Or two, you approach an investor without knowing your own numbers.

Do remember, an investor will always keep a keen eye out at how vigilant you are with your utilisation of resources and only your finance and accounting departments will be able to tell you exactly where each of your resources are being utilised. Having this information when approaching an investor is a big plus point!

In the case of a freelancer…

Freelancers usually go to a CA annually with a proper document that includes all their data and transactions for the year. However, one thing to be kept in mind is that an excel sheet made by you will make all the sense in the world to you (obviously) but could be absolute gibberish to somebody else. This may work out for a freelancer but rarely will in the case of a company. Hence, there is a basic level of knowledge that needs to be given to your accounts person so that you both are on the same page. Basically, you must know how to create your data in a way that’s viable for you and your accountant. For example, you have plenty of softwares like Quickbooks, where you literally just have to put in the description for the transaction and the software fills out the rest and creates an excel for you.

We hope these little nuggets of information prove to be useful to you and help you get your accounting and finance systems in order. We have another post in the works, so stay tuned for more.

Source – inc24

EPFO rules changed to enable digital payments

New Delhi: The labour ministry has amended the social security schemes run by the retirement fund body EPFO to enable it to make all payments—pension, provident fund and insurance—to members electronically.

“The labour ministry has amended the schemes run by the EPFO by a notification. This will enable the Employees’ Provident Fund Organisation (EPFO) to make all payments like EPF and pension through digital mode,” an official said. It was provided in the schemes run by the EPFO that the body can make payments to its subscribers through various modes like money order, cheques or electronically.

ALSO READ: How to submit your EPF claim online

“The scheme has been completely amended and the provision of making payments through money order or cheques has been omitted from the schemes. Thus all payments would be made through electronic mode,” the official said. Explaining further, the official said, “Though the EPFO had been making 98% of its payments through electronic mode, there were some field offices which were using other modes like cheque and money orders.” The official also informed that the decision to go 100% digital for payments was taken after some complaints were received for ensuring complete transparency.

The EPFO has over four crore subscribers and receives one crore claims every year including that of EPF withdrawal, pension fixation and insurance claims.

Source – ETRetail

The Good, Bad, And Ugly Of GST – An Ecommerce Perspective

This could be purely coincidental. But the Goods and Services Tax (GST) in India was introduced as the 101st amendment to the Constitution. That’s the best Shagun and an auspicious number in itself to make sure it has a successful rollout, eventually!

For a while now, there has been enough said about the impact of GST on the mushrooming ecommerce industry in India. In some cases, they have begun sounding more like debates around whether GST is a boon or a bane for ecommerce. To my mind, this is a classic case of too much noise being made around a few relatively trivial issues in a much larger scheme of things.

To put this in perspective, the thing that matters most is that, finally, India is on the verge of implementing its largest tax reforms since independence. No other country of similar size and complexity has attempted such a mammoth task before. It unambiguously helps us simplify our tax structures and systems, helps goods move seamlessly across the country, spurs growth and improves ease of doing business.

This is one of the best things that could have happened for ecommerce, particularly B2B ecommerce, in the country. Online platforms and marketplaces will now truly be able to maximise the benefits of distributed inventory, without having to deal with variables such as taxation optimisation. Various states imposing entry taxes and the way-bill documentation complications, which restrict or escalate costs for marketplaces, will soon be a thing of the past.

It is clearly settled that the implementation of GST in India, is by and large, a boon for all businesses! There is no two ways about it.

Having said that, there are some pertinent challenges that need the attention of the GST Council. In context of the ecommerce industry, these challenges are centred around the following:

  • Tax Collection at Source (TCS).
  • Treatment of sales returns, cancellations, replacements, and discounts.
  • Ambiguity around a few specific clauses in the GST draft bill.

How To Combat These Challenges

According to the draft bill, the e-commerce platforms will be liable to collect TCS on the sale of goods and services made by the supplier. It will be the responsibility of e-commerce platform to file monthly and annual returns.

This obviously puts a huge accounting burden on the ecommerce platforms given the fact that there are now lakhs of sellers concluding millions of transactions on these platforms.

To be fair to a fledging yet fast-growing industry like ecommerce, the burden of tax collection should not be put on the platform. This should remain restricted to the extent of data sharing at seller-level, with the tax authorities, the way it is being done in Delhi and Rajasthan currently. It is a fair ask, since there is no such obligation on any other business model as part of the draft bill.

Due to a fairly high component of COD for most ecommerce platforms, returns and cancellations rate still amount to nearly 20% and cash reconciliations take anywhere between 7-15 days. This is in stark contrast to most other offline business models.

Returns happening in months different from the month of sales booking, replacements being done from different states’ sellers, inter-state cancellations are fairly common scenarios. There is much greater clarity required in the draft GST bill on the treatment of such cases and how it impacts TCS calculations.

Also, the value of goods sold in context of discounted products is still ambiguous. Clearly laid out guidelines for the same are needed before roll-out.

Clearly, there has been an attempt made for the first time by Indian regulation to recognise the emerging tech-based business models ahead of implementation. For instance, there are definitions in place for Operators and Aggregators. But a lot more in-depth work needs to be done to be able to eliminate ambiguity completely.

A lot of issues such as treatment of inter-state stock transfers, point of taxation, place of supply and registration requirements in case of e-commerce platforms remains shrouded in ambiguity.

The last thing that the industry needs is, too much being left to the interpretation of local authorities. That will only end up defeating the whole notion of One Nation, One Tax.

However, these are some relatively minor hurdles that need to be crossed, considering the distance that we have covered. It has taken over 15 years for us to get here, since the Atal Bihari led government set up the Empowered Committee in 2000 to streamline the GST model. There is hope that all valid concerns shall be addressed by the GST council.

In Conclusion

These final hurdles seem minor in contrast to the huge positive productivity impact that we shall see in India’s logistics and warehousing industry, the improvement in ease of doing business in the country and the simplification of taxation for businesses. Most ecommerce companies have their roots in a strong startup culture and realise that complex change is mostly incremental and not necessarily perfect from inception. A less-than-perfect GST can be improved with time and is bound to be better than the complex taxation web that we are currently operating in.

In conclusion, I think the current government has demonstrated its clear intent to take bold decisions and push through reform, in its recent demonetisation move. There is substantial hope that we will see similar intent while implementing GST as well as per timelines, keeping in mind the Good, Bad and Ugly aspects of it.

Source – ETRetail