In a major relief to the mutual fund distributors, the GST council headed by the Finance Minister Arun Jaitley has deferred the implementation of reverse charge mechanism (RCM) until March 2018.
In a press release, the government said, “The reverse charge mechanism under sub-section (4) of section 9 of the CGST Act, 2017 and under sub-section (4) of section 5 of the IGST Act, 2017 shall be suspended till 31.03.2018 and will be reviewed by a committee of experts. This will benefit small businesses and substantially reduce compliance costs.”
The move will benefit mutual fund distributors who do not have GST registration number.
The distributors who have already taken GST registration number can cancel it to avail this benefit. However, there is a caveat. Mumbai based CA Yogendra Jain said that mutual fund distributors who have converted their service tax registration number into GST registration number could cancel their existing GST registration, provided they earn less than Rs.20 lakh a year. However, distributors who have recently taken their GST registration number on voluntary basis will have to wait for a year to cancel it, he added.
Earlier in June, AMFI had directed AMCs to deduct GST from July 1 from the commission of distributors who do not have a GST registration number and pass it on to the government. Currently, fund houses have been following reverse charge mechanism (RCM) to implement GST for distributors earning less than Rs20 lakh.
For distributors with GST registration, AMCs continue to follow forward charge mechanism, i.e., AMCs will pay the gross commission to them.
In addition, AMFI had clarified that distributors earning less than Rs20 lakh, and selling schemes of a fund that is based outside their home state, will have to obtain a GST registration number. In addition, once a distributor obtains a GST registration number, there will be no exemption. GST has to be paid from Re1, AMFI clarified.
However, with the latest development, mutual fund distributors earning less than Rs.20 lakh a year will be exempted from paying GST.
Another question is that will these distributors get any refund of the GST paid so far under RCM.
Cafemutual spoke to two operation heads of fund houses to understand if the government would refund the money. Both the officials are sceptical about the refund.
“There is no mechanism under which the government refunds the money deducted under RCM. In my view, it is unlikely,” said the operation head of a foreign fund house.
Another operation head said that the government has not mentioned any tentative date to implement these amendments. “We will have to wait for the clarification on this,” he said.
He also said that brokerage for the month of September would be delayed due to absence of clarification. “We are not sure if we deduct the GST from September’s brokerage. It is better to wait for a while,” he said.
Another relief for the mutual fund distributors is implementation of quarterly returns filing. The mutual fund distributors having turnover of less than Rs.1.50 crore can file GST returns quarterly instead of monthly.