A group of BSE brokers has sought clarification from the markets regulator Sebi regarding statutory charges on commission paid by mutual fund houses to the brokers.
In a letter written to Securities and Exchange Board of India (SEBI), the BSE Brokers Forum has sought a clarification whether the commission paid by the mutual funds to the brokers of 12 basis points is exclusive of statutory charges.
“There has been lot of confusion regarding interpretation of the 12 basis points ceiling. The fund houses are interpreting that the ceiling is along with all the statutory charges that is service tax and other applicable taxes,” it said in a statement.
The inclusion of service tax in the 12 basis point brokerage is killing the industry as the margins are wafer thin and from June 1, the rise of 50 basis points in service tax will further dent the margins, BSE Brokers Forum President Siddharth Shah said in the letter.
In September 2012, Sebi had notified that commission paid by mutual funds to their brokers should not exceed 12 basis points. The brokerage and transaction cost are capped to 0.12 per cent in case of cash market transactions and 0.05 per cent in case of derivative transactions.
“The notification clearly mentioned the cap excluding statutory levies, so that inadvertent interpretation would not have led the MF clients to demand an inclusive rate of commission, where broker ends up paying service tax on his brokerage and service tax on exchange transaction cost, BSE Brokers Forum vice-chairman Alok Churiwala said.
“What a broker earns is purely his brokerage. Other levies are statutory and are required to be collected and paid by the broker. Non collection simply hits bottom-line of brokers’ commission, as he has to pay from his pocket,” the letter noted.