In response to clarification sought by an IFA association, the office of Chief Commissioner of Service Tax has said that IFAs can avail service tax exemption under Small Service Provider (SSP) exemption.
Cafemutual has a copy of this letter.
Simply put, IFAs earning over Rs.10 lakh will have to pay service tax on the income above Rs.10 lakh and not on the full amount. However, this exemption is only available for one year. That means, in the subsequent years, IFAs will have to pay service tax on the full amount.
Citing an example, Yogendra Jain, a Mumbai based CA said, “If an IFA has earned Rs.12 lakh during this financial year, she has to pay service tax only on Rs. 2 lakh, i.e. amount over the threshold limit of Rs. 10 lakh. However, from the subsequent years, she has to pay service tax on full amount irrespective of her income.” He further said that IFAs earning less than Rs.9 lakh need not register themselves with the service tax authority. However, IFAs earning more than Rs.9 lakh will have to take service tax number and pay service tax once their annual income crosses Rs.10 lakh under Small Service Provider exemption rules.
Earlier, Tamanna Varma, Senior Vice President of All Mutual Fund Distributor welfare Association (AMDwA) had sent an email to Service Tax Commissioner seeking clarification on service tax exemption for IFAs under Small Service Provider.
Responding to her email, Sachin Jain, Upper Commissioner, Service Tax Office has sent a letter yesterday in which he has said, “The service provider is being made liable to pay service tax. The small sub-agents down the distribution chain will still be eligible for small service provider exemption (threshold turnover of Rs. 10 lakh/year) and a very small number will be liable to pay service tax.”
In June, AMDwA had organized an event to spread awareness on service tax in which renowned Chartered Accountant and Service Tax Expert Bimal Jain had said that distributors may avail service tax exemption under Small Service Providers. Taking cue from his views, the association had approached the Service Tax Commissioner seeking clarity on this exemption.
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 In Budget 2015, this exemption was withdrawn. Fund houses were deducting service tax on commission income of distributors as it was under reverse charge mechanism. Now in the Budget 2016, the Finance Ministry has put it forward charge mechanism in which IFAs earning less than Rs.10 lakh are exempted from paying service tax.
