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Understanding the Impact of GST on Your Finances

GST stands for Goods and Services Tax with both direct and indirect implications. While the impact of GST is not well-documented, you must understand the difference it makes to your finances to plan accordingly. In the following sections, we will look at the sustained impact of GST on your financial planning so you can file your income tax online accordingly.

Impact on Your Money’s Purchasing Power

The inflation rate is one of the most crucial factors you must consider when planning your finances. A high inflation rate reduces your purchasing power and impacts your finances in many ways. Firstly, it leads to higher returns on equities, which means you must tweak your investment portfolio adequately. Secondly, it means you must take a higher risk and plan better allocations to achieve your long-term goals.

For most food items, the applicable GST is within a range of 0 to 5%, keeping inflation under control. The GST Council also holds meetings where it reclassifies peak bracket items into a lower tax bracket. Apart from temporary inflation pressures, GST’s long-term impact would be a reduction in the inflation rate. It will positively impact your personal finances by leaving you with a greater surplus.

Impact on Transactions in Financial Products

The implementation of GST has clearly increased the indirect tax imposition on debt and equity-related transactions. The service tax for financial products has also increased under the GST regime, leading to a sharp increase in the cost of transactions in financial products, including mutual funds, equities, and portfolio management plans. However, you will compensate for the higher cost of transactions with higher equity returns. As the GDP growth rate increases with GST, it will increase the value of equities and benefit Advance Tax Payment.

Impact on Debt Instruments

The implementation of GST has shown clear favours for equities. Over the last few years, there has been an increase in investments towards equities rather than debt. That is because equities have become a more attractive asset class due to an increase in GDP that boosts equity value. Furthermore, the lower inflation has reduced the interest rates, boosting equity valuations due to the discontinuation of future cash flow at lower capital cost. Simultaneously, the interest rates for debt instruments will go down with reduced inflation. As a result, investments in fixed debt instruments will make less sense to achieve long-term goals.

Triggering a Greater Shift Towards Assets

With shifting trends from debt to equity, GST has also led to a shift away from financial assets like gold and towards mutual funds. The combination of GST, RERA, and demonetisation has largely constrained investments in real estate. Investing personal finances in gold is also expected to diminish. As more jewellers shift towards the organised sector, the benefits of buying and selling gold from nearby jewellers might reduce. GST has only boosted financial investments in mutual funds and equity.

Impact on the Personal Budget

One sector that GST has impacted most significantly is the household budgets for individuals and families. Since the GST system is more supportive of mass consumption, it has focused maximum pressure on exclusive products. Consequently, individuals must tweak their budget to modify their spending habits significantly. It largely impacts their household budget by changing their approach towards savings, expenditures, financial targets, investments, etc. Since GST has a sympathetic approach towards mass consumption, it might boost your power to save.

Since GST has reduced the prices of goods and services by eliminating multiple taxes, it has benefited consumers spending money on essential goods like clothes, food, and personal care items. However, those consuming cigarettes and alcohol will find them more expensive because these items fall into a higher tax bracket. Consequently, it has affected their purchasing power for such products. Similarly, GST has increased the cost of education and healthcare while reducing the cost of hospitality and travel, leading to a mixed impact on personal finances.

Impact on the Cash Flow

GST gives you the chance to modify your budget in favour of savings and allocate bigger portions to financial assets. If we talk about the impact of GST on investments, it clearly favours mutual funds and equities over debt. From the financial plan perspective, it can have long-term implications on your finances.


GST shows a significant impact on finances, especially on cigarette and alcohol consumers. The high GST rates on such products make them expensive habits. Now that you understand the impact of GST on personal finances, you can plan and file income tax online accordingly.

IEMLabs is an ISO 27001:2013 and ISO 9001:2015 certified company, we are also a proud member of EC Council, NASSCOM, Data Security Council of India (DSCI), Indian Chamber of Commerce (ICC), U.S. Chamber of Commerce, and Confederation of Indian Industry (CII). The company was established in 2016 with a vision in mind to provide Cyber Security to the digital world and make them Hack Proof. The question is why are we suddenly talking about Cyber Security and all this stuff? With the development of technology, more and more companies are shifting their business to Digital World which is resulting in the increase in Cyber Crimes.


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