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One of our readers approached us with this query.
I did not cross the threshold limit of Rs.20 lakh. However, I received a summon from the GST officer that I had crossed Rs.20 lakh income in Jan 2023 according to their records. Also, the officer wants me to pay GST from 2017. Even then my income was less than the threshold of Rs.20 lakh.
I told him that AMFI rules say that MFDs who earn less than Rs. 20 lakh and do not have GST registration number are exempted from paying GST.
However, the officer is saying they are not governed by the AMFI norms. Can you help me deal with this situation?
Name withheld on request
Dear MFD,
The chances of this happening are very rare. However, here is our response without necessarily agreeing to your understanding of the matter.
In your situation, you first need to assess your total income before coming to the conclusion as at times, many MFDs do not factor other commissions to arrive at gross commission.
The threshold income should include commission income from other lines of business across financial products like NPS, life insurance, motor insurance, health insurance, P2P lending, PMS and AIF.
Ikesh Nagpal, Head, Indirect Taxation, AKM Global said that MFDs should also factor in perks like business trips or sponsorship for events given by AMCs to arrive at the total income. According to him, a few AMCs put such expenses against MFDs’ ARN, which are linked to their PAN and GST in their books.
Further, Both RTAs - CAMS and KFintech offer a mail back report having break up of commission, which indicates how much is the net commission and the GST component.
Now coming back to the applicability of Rs.20 lakh exemption, according to the government rules, under the Integrated Goods and Services Tax Act, 2017, any person making inter-state supplies of taxation services and having an aggregate turnover of up to Rs.20 lakh, to be computed on all India basis are considered as exempted from obtaining GST registration. Such a limit is Rs.10 lakh for special states.
Now, the question is whether mutual fund distributors fall under the services. For this, you may visit the website of the Central Board of Indirect Taxes and Customs (CBIC) and go to the GST tab.
You will see a section called GST Rates, Ready Reckoner. From there, select the ‘Classification of services’.
After that, you will see two sections - explanatory notes and scheme of classification of services. You may download the explanatory notes as it is more precise document.
In the explanatory notes, MFDs come under the Harmonised System for Nomenclature (HSN) code 997152 i.e brokerage and related securities and commodities services including commodity exchange services.
This service code includes:
- Brokerage services (that is bringing together purchasers and sellers of the same instrument) for securities
- Services of acting as a selling agent of units, shares or other interests in a mutual (investment) fund
- Sales, delivery and redemption services of government bonds
- Brokerage of options
- Brokerage services for commodities and commodity futures, including financial futures
- Brokerage services for financial derivatives
- Computer-based clearing and settlement for interchange of debits, credits and transfer of ownership of securities
Click here to read the explanatory note.
Hope we have addressed your query.
Disclaimer: Please note that Cafemutual has spoken to GST experts at consulting firms, compliance officials at AMCs and chartered accountants to write this article. We intend to clarify your doubts on GST. This does not tantamount to be a tax advice of any nature or a recommendation. Please take advice from a qualified tax advisor for your guidance.
