In a move that can bring minor relief to mutual fund distributors, AMFI has formulated a computation method of service tax deduction which reduces net service tax payout to Rs.12.28 on every Rs.100 paid as commission to distributors.
H N Sinor, CEO, AMFI confirmed this development. He said, “We have worked on a computation method on how AMCs can deduct service tax from commission. This formula is expected to be followed by all AMCs.”
An analysis of AMFI’s service tax formula shows that though the gross service tax is 14%, the net service tax payout comes down to 12.28%. Let us assume a distributor is entitled to get Rs.100 and service tax is 14%. It works something like this - (net service tax payout = commission payout – commission payout X gross service tax rate / commission payout + service tax.) In other words, the net commission payout works out to Rs.87.72 (Rs.100-Rs.12.28) instead of Rs.86.
Proposed method of computation
However, AMFI has clarified that distributors cannot set off service tax as it falls under reverse charge mechanism.
The service tax on distributors has come into effect from June 1, 2015.
