DSP BlackRock MF has reportedly come out in support of distributors to help them tide over the service tax burden imposed by the Budget 2015. With effect from November 1, DSP BlackRock MF is bearing 50% of the service tax burden.
Under this arrangement, DSP BlackRock MF will continue to pay trail commission from the distributable TER (as per AMFI’s best practices circular). However, instead of deducting the entire 14% of gross commission payout as service tax, it will be paying this tax from its own pocket.
As a result, the overall trail commission goes up to some extent. Assuming that a scheme is offering trail commission of 90 bps, under this arrangement, DSP BlackRock MF has decided to pay 84.25% (instead of 77.88% net commission payout). (Considering net service tax deduction of 12.28% for calculation. On reverse charge mechanism 14% of service tax becomes 12.28%).
A few distributors whom Cafemutual spoke to welcomed this move and expect other AMCs to follow suit.
Earlier in May, AMFI had reportedly proposed two approaches to offset service tax burden on distributors – increasing total expense ratio or TER and paying out additional commission in the form of promotional incentive. However, nothing has been finalized yet.
Last month, Central Board of Excise & Customs (CBEC) officials had told AMFI that they are not concerned as to who bears service tax so long as they collect service tax.
