MUTUAL FUND COMPANIES - AMCs to Deduct GST from Agent commissions from July 1, 2017

MUTUAL FUND COMPANIES - AMCs to Deduct GST from commission from July 1, 2017

PwC recommends AMCs to deduct GST from commission of distributors who do not have GST registration.

AMCs are likely to deduct GST from the commission of distributors who do not have GST registration number and pass it on to the central government from July 1, 2017.

In a meeting with AMFI, PricewaterhouseCoopers (PwC) has recommended fund houses to deduct GST on commission income of distributors who do not have GST registration number.
Earlier, AMFI had appointed PWC to prepare a whitepaper on the implementation of GST and its impact on the mutual fund industry.

Explaining to Cafemutual, how the new GST regime would be implemented, a senior official who attended this meeting said, “Theoretically, the central government has exempted distributors earning less than Rs.20 lakh from taking GST registration number. However, if a distributor sell schemes of a fund that is based outside his home state, he has to take GST registration number. Suppose, a Chennai based distributor is selling the schemes of a Mumbai based fund house, he will have to take GST registration. In addition, Maharashtra-based distributors earning less than Rs.20 lakh dealing only with Maharashtra based AMCs need not take GST registration but unlike service tax, GST has to be paid from Rs.1. Hence, IFAs are better off taking GST registration number to get gross commission irrespective of their income so that they can save some amount through input credit.”

In a recent communication sent to distributors, Motilal Oswal MF has urged its distributors to take GST registration number. The company said, “All the distributors located outside the Maharashtra state are liable to register and pay GST from rupee 1 turnover. We urge all the distributors located outside Maharashtra to immediately register under GST regime (If they have not done so) and if already registered, provide us the number. For distributors having their place of business in Maharashtra would register based on the limit of Rs.20 lakh.”

The mutual fund house has also requested IFAs to follow practice of raising invoice for the brokerage or commission.

The CEO from a private fund house told Cafemutual that GST norms require that all distributors would have to take GST registration irrespective of their earnings. Non-registration is non-compliance with GST norms, he said.

With effect from July 1, 2017, the government has exempted distributors earning less than Rs.20 lakh from paying GST.

Another senior official said that the re-introduction of reverse charge mechanism would help distributors to deal with multiple state registration. He says, “AMCs anyway may have to register with all states. However, reverse charge mechanism will shift the onus of paying service tax on AMCs on behalf of distributors. This could reduce the cost of compliance for distributors. However, a few distributors who earns less than Rs.20 lakh may get affected but it would benefit them all for sure in the long term.”

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