One of readers wrote to us with this query:
I have two questions related to GST:
Through your article, I understand that an MFD has to pay GST if his income exceeds Rs. 20 lakh per year. However, if an MFD earns commission of Rs.15 lakh on insurance after TDS and Rs.10 lakh on mutual funds, does he need to pay GST on the commission earned from insurance as well.
Secondly, if an MFD earns Rs.60 lakh from brokerage and paid 18% GST, does he need to pay income tax on the remaining commission since it would be a double taxation?
Akshat Jain (MFD)
Dear Akshat,
Mutual fund distributors earning over Rs.20 lakh a year will have to obtain GST registration number within 30 days of reaching such a threshold and pay GST.
The limit is Rs. 10 lakh for distributors from special states/UTs comprising Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
Ensure that you include commission from other financial products to arrive at your annual income. GST norms include commission income from all financial products such as stock broking, mutual funds and insurance to arrive at your annual income.
In the above example, since an individual distributor earns commission of Rs.15 lakh on insurance policies net of TDS and Rs.10 lakh on mutual funds, his overall income exceeds Rs.20 lakh. In this case, he needs to pay GST on entire commission income irrespective of the financial product i.e. Rs.25 lakh. The applicable GST rate is 18%.
On second question, MFDs are liable to pay income tax on the net of GST income. In the above example, MFD has to pay income tax after deduction of all business related expenses like office rent, employee salary and so on. The rate of income tax is governed by basic income tax rules i.e. if the taxable income is over Rs.10 lakh, MFDs will have to pay tax at 30%.
Overall, MFDs have to pay two kind of taxes on their income – GST and income tax. Currently, MFDs pay income tax on net income i.e. income earned after deducting GST and business expenses.
Any TDS deducted can be adjusted to the net tax payable.
I hope we have resolved your query. You can write to us if you need any clarity.
Regards,
Team Cafemutual
Please note that Cafemutual has spoken to GST experts at consulting firms, compliance officials at AMCs and chartered accountants to write this report. 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.
