In a major relief to mutual fund distributors, the government in the Budget has proposed to exempt service tax levied on agents earning less than R10 lakh annually. This move will bring in comfort to more than 33,500 mutual fund distributors.
It has been proposed in the Budget that services provided by mutual fund agents/distributors to a mutual fund or asset management company be made taxable under forward charge with effect from April 1, 2016. However, distributors earning more than R10 lakh will have to pay service tax of 14%. Currently, this 14% levy is a “reverse charge” which means all distributors are liable to pay it regardless of the size of their income.
CVR Rajendran, CEO of Amfi, said: “This is a very positive move and this issue was part of pre-Budget recommendations of the mutual fund industry. Of over 38,000 active agents, around 4,500 distributors gets commissions of over R10 lakh. We believe that after amendment to the tax rule, more and more distributors will be able to sell mutual funds to a larger audience.”
The Financial Intermediaries Association of India (FIAI) has also welcomed the Budget move on forward charge in service tax on MF distributors’ commissions. “The forward charge mechanism allows all distributors to claim CENVAT credit on service taxes they pay. At the same time, it also ensures that many small distributors, IFAs and sub-brokers below the threshold of R10 lakh annual income will be exempted from the service tax being levied on their commissions…” a release issued by the FIAI said.
In the previous Budget, services provided by MF distributors were brought back under the ambit of service tax. This led to an effective tax liability of 14% on these intermediaries.
Milind Barve, MD of HDFC Asset Management Company, said: “We welcome the relief on service tax for small distributors earning less than Rs 10 lakh.”