‘First year GST is applicable on incremental income and not on entire commission income’

One of our readers wrote to us with this query:

Dear Cafemutual,

We run an MFD business in Haryana. We have two queries related to GST.

1. If an MFD crosses threshold limit of Rs.20 lakh and obtains GST, does he need to pay GST on entire amount i.e. from Re.1?
2. If an MFD took GST in FY 2016-17 and surrendered it subsequently in FY 2019-20, what will happen to him if he takes GST again in FY 2021-22?

Gireesh Sethi, Ambala

Dear Gireesh,

Hope you are doing well!

If you obtain GST registration for the first time post reaching the threshold limit of Rs.20 lakh, you will have to pay GST only on the incremental income in the first year.

For instance, if your gross income is Rs.24 lakh from mutual fund commission, you will have to pay GST only on Rs.4 lakh. From next year onwards, GST will be applicable from Re.1 and it will be irrespective of your income i.e. even if you earn less than Rs.20 lakh and have GST registration number, you will have to pay on your commission income.

Now, coming back to your second question. Since the MFD in your example has surrendered his GST before and he is now reobtaining his GST, his re-registration will be considered fresh and he will have to pay GST only on the incremental income in the first year.

GST on his commission income in the subsequent years will be charged from Re.1 from next year onwards.

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.