With effect from April 1, 2016, distributors earning less than Rs. 10 lakh are exempted from paying service tax.
After levying Krishi Kalyan Cess, the effective service tax rate goes up to 15% from June 2016.
The Budget 2016 has shifted the onus of paying service tax on commissions from AMCs to distributors and exempted IFAs earning less than Rs.10 lakh from paying service tax by putting it under ‘forward charge’ mechanism.
Simply put, distributors having turnover of less than Rs. 10 lakh need not pay service tax. Also, distributors earning more than Rs. 10 lakh can avail the benefit of cenvat credit by setting off the service tax payment against other services availed by them. Distributors stand to gain from this move as they will be allowed to set off service tax against other services. Tax experts say that distributors will have to take service tax number to avail this benefit and use this certificate to set it off against the service tax paid by them to other service providers. This way, distributors will get relief to the extent of service tax paid by them to their vendors.
The move is expected to benefit a large number of distributors. According to rough industry estimates, only around 1,200 distributors earn more than Rs. 10 lakh annually from mutual funds. There are close to 8,000-10,000 active distributors in India.
A few Chartered Accountants whom Cafemutual spoke to believe that the service tax exemption will be applicable on total turnover and not only on the commission income from mutual funds. That means, if distributors have commission income from other products like insurance, NCDs and tax-free bonds, this income will be clubbed with MF commission payout for calculation of service tax payout.
In 2012, the government had put the services of mutual fund agents under the negative list which exempted them from paying service tax. Till 2012, AMCs were deducting service tax and paying it to the government. In Budget 2015, this exemption was withdrawn. So far, fund houses were deducting service tax on commission income of distributors as it was under reverse charge mechanism.
