The service tax exemption withdrawn by Budget 2015 has become effective from June 1. Also, the service tax has now gone up from 12.36% to 14%.
Distributors are contesting that the service tax needs to be passed on to investors, who are the ultimate recipients of service.
While distributor associations across India have approached AMFI on this matter, it is still not clear as to who will bear service tax. A consensus is likely to be arrived at the forthcoming AMFI meeting scheduled on June 5. Meanwhile, AMFI has approached the Ministry of Finance and SEBI to get some relaxation on service tax.
To provide some relief, some fund houses are said to have paid out the commissions for business done last month in May itself. Meanwhile, most AMCs Cafemutual spoke to said that they have started deducting service tax from commissions from June 1 till they get clarity on this issue.
The service tax hike is also going to impact investors (though marginally), since fund houses charge service tax on management fee. Suppose the total expense ratio (TER) is 2.50% and the scheme is charging 1% management fee, service tax is levied on 1% fee. Fund officials say that the TER might go up by 1 to 2 basis points.
