Service tax on MFs may hit AMCs trade

Mumbai, Jan 26 | Updated: Jan 27 2005, 07:14am hrs
The service tax issue agitating 70,000-odd mutual fund (MF) distributors for more than a year, may be solved if the trade body Association of Mutual Funds (Amfi) has its way. In a meeting held with finance ministry officials on Friday (January 21), Amfi proposed that the service tax be deducted at source at the asset management company (AMC).

Currently, distributors are liable to pay service tax on distribution of mutual funds. Ambiguity about whether mutual fund distributors qualify under the definition of service liable to pay this tax resulted in a court case.

Amfi has now proposed that the service tax now being paid by MF distributors be deducted by the 29 fund house and paid on their behalf. Amfi members expect that they will be given the go-ahead for making this system operational after the Budget.

The tax deducted at source (TDS) model is expected to relieve distributors from worries about record-keeping, documentation and possible raids from the excise department.

Amfi chairman A P Kurian told FE in this regard, We have been mulling over the TDS issue for quite some time now. It is a win-win situation for all.

The government will have ease of collection if service tax is collected from the 30-odd AMCs rather than thousands of distributors.

The distribution community also will not have to take on the hassle of physical payment of this tax, maintenance of records etc.

AMCs, on their part, have no objections to the proposal.