Distribution of PMS and AIF is more tax efficient for MFDs

One of our readers wrote to us with this query:

I would like to distribute PMS and AIF. I would like to understand GST implication on commission income from PMS and AIF.

Name withheld on request

Dear Distributor,

Thanks for writing to us.

Alternate products like PMS and AIF are more tax efficient for MFDs especially when it comes to GST.

Currently, PMS and AIF pay you commission excluding GST. And as and when you raise GST invoice, the company pays you the GST amount, which the company had collected from investors at the time of charging annual fee.

For instance, a PMS company charges gross annual fee of 2.36% - 2% fee + 0.36% as GST. Of this, the company pays commission of 1% to a distributor and if the distributor raises invoice, the company will again pay 0.18% towards GST.

Simply put, unlike mutual funds where distributors bear the burden of GST, the end investor pays GST on brokerage fee earned from the distribution of PMS and AIF.

In mutual funds, distributors have to pay both GST and income tax on trail income.

I hope we have addressed your query. You can write to  nishant@cafemutual.com to get any other clarity on this.

Regards,

Team Cafemutual