GST effect: Household budget up by Rs 800-1,500/month

With the goods & services tax (GST) coming into force from July 1, household budgets are busy adjusting to the new regime. A typical household spends Rs 50,000 per month. Similarly, an upper middle-class household spends Rs 1 lakh a month. DNA Money spoke to tax consultants to assess the exact impact on common household expenses including home loan EMI, credit card repayment, groceries, cooking gas, water, electricity, phone and cable TV bills, transportation cost, entertainment and medicines. Here's the low-down on how your budget changes post-GST.

Family budget: According to ClearTax, home loan EMI accounts for 25-35% of a household budget. Most other bills individually account for 5-10% each. Groceries bill can be 5-15% of budget and transportation cost (own car, cabs, parking) usually get 10-15% of the budget.

Archit Gupta, founder and CEO, ClearTax, said, "According to our calculations, a household spending Rs 50,000 a month pre-GST may be required to spend Rs 50,726 post-GST. Similarly, a household previously spending Rs 1 lakh a month may be spending Rs 101,506 now." These numbers could change depending upon exact amount spent under each expense item.

This means a household spending Rs 50,000 a month, or Rs 6 lakh a year, will spend about Rs 6.1 lakh in a full year. Similarly, a household spending Rs 1 lakh a month, or Rs 12 lakh a year will now spend Rs 12.18 lakh in a full year.

Price impact: From a price point of view, although not much of reduction in prices has been witnessed as of now, most of the companies have started reworking their pricing strategies. Experts think it may take another 2-3 months to see the ripple effect of these changes since clearance of old stock and replenishment with the new stock having new pricing effect will take some time. This is important from groceries and other expenses concerning the purchase of items.

L Badri Narayanan, partner-Lakshmikumaran & Sridharan, said the major focus is on goods or services which affect the household directly. Accordingly, taxes have been reduced on the goods for mass consumption. "There is no negative impact on books, periodicals and journals etc under GST. Renting of residential property, healthcare education has been kept outside GST.

"The major hit to the households will be in respect of services which are consumed like cable TV, mobile phone bills, credit card charges, cab services where the rate has increased from 15% to 18%....liquor is outside the purview of GST and will continue to be taxed under VAT in the same manner as earlier," said Narayanan.

Some families may see medicine cost increasing. "Medicine bill will be costly as now GST at 12%, earlier life-saving drugs were nontaxable," points out Vishal Rajeha, senior consultant, Taxmann.

Electricity and water bill, thankfully, are outside the purview of GST. Entertainment cost in terms of seeing movies is an important expense. The GST rate of 18% tax on cinema tickets below Rs 100 is too little a relief. In multiplexes, most movie tickets cost more than Rs 100 and this would attract 28% GST.

Reimbursements math: In many cases, while employees pay for a certain service or item in their monthly budget, they get reimbursements. In case there are reimbursements given by employers for certain items, the important question is whether the employee still coughs up a higher amount.

The transactions between employee and employer need a thorough examination under GST regime. "If allowances are given as a part of the salary, then no GST is applicable on such allowances. Further, gifts given to the employee for a value not exceeding Rs 50,000 per year will not be taxable under GST," says Narayanan.

Taxmann's Raheja sees no impact on reimbursements as "government has tweeted that no GST will be applicable on reimbursements."

Gifts, however, will not include anything given by the employer to the employee during the course of his employment like car given by the company, free housing to the employee etc which forms part of his/her salary will be outside the scope of GST.