GST EFFECTS EXCHANGE OFFERS!!! HOW MUCH???

After using a product for quite a long time or when we feel like buying a new product we tend to exchange the old one for a new product. This is frequent in consumer durables sector for products like TVs, Mobiles and Refrigerators etc.

Currently we are paying a VAT of 4% on the final price after deducting the exchange amount. The proposed GST bill imposes a state level VAT of 4% and doesn’t impose central tax on the exchange goods. The GST bill imposes that 4% tax on the Initial price (market price) of the product before deducting the exchange amount. This will increase the cost of the goods, let’s see how much increase in cost can be expected.

  Before GST After GST (Expected)
Price Rs.40000 Rs.40000
Exchange amount Rs.10000 Rs.10000
VAT/GST 4% 4%
VAT/GST to be paid on Rs.30000 Rs.40000
VAT paid Rs.1200 Rs.1600

 

As we can see if someone wishes to buy a new mobile/television set with a price tag of Rs 40,000 and he is availing for an exchange offer where his old mobile/TV is valued at Rs 10,000, he would have paid Rs 30,000 to the retailer under the current rules, and VAT would be applicable on the cash of Rs.30000. But under GST, tax would be levied on the actual cost Rs 40,000.

The amount of tax paid is increased by Rs.400 which is approximately 1% of the products price. If the product which is purchased at a price of Rs.100000 or more would have to pay more tax as they would come under luxury goods. But for all other products the increase in tax paid due to exchange would be around 1%.

There is still uncertainty about the tax rates to be imposed under GST. The companies are still not sure if they should incur the cost or should they pass onto customers. In my opinion 1% increase in tax will not have much impact on sales of used goods as long as the tax rate doesn’t change much.

To read about effect of GST on movie tickets Click here.

 

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