Distributors earning up to Rs.50 lakh will have to wait for some time to get clarification on whether they can avail the benefits of lower tax rates under composition scheme.
On Thursday, the Union Finance Minister Arun Jaitley had announced the introduction of composition schemes for services sector. Under the scheme, service providers earning up to Rs.50 lakh could pay GST rate of 6% instead of 18% with effect from April 1, 2019. However, these service providers cannot avail input credits if they opt for the composition scheme. Also, they will have to pay taxes quarterly but file returns annually.
However, the composition scheme in the current form does not allow service providers to avail benefits if they have interstate services. For instance, if a Chennai based distributor is selling the schemes of a Mumbai based fund house, he cannot avail the benefits of composition scheme. Since practically all distributors work with AMCs which are based out of Maharashtra, Gujarat, Delhi and Tamil Nadu, they cannot avail the benefits.
That means only a fraction of Maharashtra distributors who do not have business with AMCs out of Maharashtra and earn between Rs.20 lakh and Rs.50 lakh can avail the benefits of composition scheme in the current form.
A senior official from a consulting firm feels that financial intermediaries such as mutual fund distributors should wait until the government comes out with the clarification on this. He said, “When GST was introduced there was an exemption given to service providers earning up Rs.20 lakh from taking GST registration. Service providers offering services in other states were not eligible to avail this benefit. However, the government had later clarified that all service providers having earnings up to Rs.20 lakh can avail this benefit irrespective of their service locations. I believe that the government would come out with the clarification addressing this similar concern of financial intermediaries.”
The COO of a large fund house said that though in the current form it is not beneficial for distributors, one should not forget the scheme has just been announced and government is yet to come out with the final regulations on this.
Comments on the previous story show that many distributors are confused if they are eligible for Rs.40 lakh exemption option given to suppliers of goods. Remember that mutual fund distributors are not suppliers of goods. Distributors are the suppliers of services and hence, this threshold limit may not be applicable to you. Also, the discretion to increase this threshold limit is with states.