Smaller Mutual Fund Distributors Exempted from
Service Tax - Budget 2016-17
Mutual fund (MF) distributors with more than Rs.
10 lakh income will be, however, paying the service tax. Budget also stated
that MF distributors paying service tax will be issued official service tax
registration number and will pay tax like any other service.
Mr. C VR Rajendran, CEO, Association of Mutual
Funds of India, said after the amendment to the tax rule only nearly 4,600
distributors out of around 38,000 active agents who earn commission more than
10 lakh will now have to pay service tax.
The service tax burden on mutual fund
distributors, however, will now rise to 15% with the budget proposal to
introduce Krishi Kalyan cess of 0.5% on service tax for the welfare of farmers.
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| C VR Rajendran, CEO, Association of Mutual Funds of India |
Earlier in 2015 November, the government had
imposed 0.5% swachh Bharat cess on service tax which had raised the service tax
from 14% to 14.5%. The new cess will come into force with effect from June
2016.
Mutual fund industry body Association of Mutual
Funds in India in its budget wish list had sought relaxation on service tax for
distributors earning less than Rs. 10 lakh commission annually. Service tax
imposed on mutual fund distributors in the last year’s budget was widely
opposed by the mutual fund distribution fraternity.
In 2012, the government had put the services of
mutual fund agents under the negative list which exempted them from paying
service tax. Till 2012, AMCs were deducting service tax and paying it to the
government. In Budget 2015, this exemption was withdrawn.
"The
services provided by MF agent/distributor to a MF or AMC, are being made
taxable under forward charge with effect from April 1, 2016 so as to enable the
small sub-agents down the distribution chain to avail small scale exemption
having threshold turnover of Rs. 10 lakh per year, subject to fulfillment of
other conditions prescribed," as per Budget document for 2016-17.
The move is aimed at increasing retail
participation in MF industry. The industry has long been seeking relaxation on
service tax for mutual fund distributors. There are 44 asset management companies (AMCs) that
manage funds of nearly Rs 12.74 lakh
crore.
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