“Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing.” After the countless times that we’ve seen and heard these words on our television screens, we remember them by heart. This warning is partly the reason to avail the services of Financial Advisors. The other reason is the simple fact that these advisors know better about what we should, do with our money.
GST on Mutual Fund Services
Like banking and insurance services, mutual fund services will also see marginal increase in charges. There is an increase in tax from the earlier 15% Service Tax to 18% GST. The turnover threshold for small mutual fund distributors is irrelevant. Both registered and unregistered agents will have to pay 18% on their income. Therefore, seeking advice from an investment advisor or an investment planner will become slightly more expensive.
You could consult your mutual fund distributor, but there’s a reason the investment experts exist. Broker-Dealer Advisors and Independent Advisors operate differently. The impact of Goods and Services Tax also differs.
Independent Financial Advisors:
As compared to Broker-Dealer Advisors, Independent Advisors follow much stricter fiduciary standards. The Securities and Exchange Commission (SEC) or the state will oversee the operations of an independent investment advisor. So one can say that it is mandatory to get registration under GST irrespective of turnover.
All financial advisors whose annual income, or commission, or fee may rise above 20 lakh have to obtain a registration. However, this does not mean that unregistered agents and distributors don’t have to pay GST. Such unregistered advisors and agents will pay GST under Reverse Charge mechanism. Companies can deduct the GST liability from the gross commission and pay the net amount.
If the distributor opts for voluntary registration, the company will pay the gross commission. The distributor has to comply with the taxes. The benefit of such a voluntary registration includes the capability to avail input tax credit. Financial Advisors who provide services in more than one state have to get separate registration in different states.
Although the taxpayers have to register on the government’s online portal, the comfort ends there. There are almost 83 fields to be filled while uploading documents in specific formats and sizes. There are many GST registration services that provide assistance. GST Edge has devised a simpler form that quickens the registration process.
Reverse Charge Mechanism (RCM):
If a registered agent or distributor engages in trading of goods and/or services with an unregistered distributor/agent, the registered person will pay the GST applicable. Consequently, there will be an obligation for registered dealers to undertake transaction with other registered dealers. This will curb corrupt practices.
The implementation of reverse charge mechanism has been deferred until March 2018. This move aims to benefit small businesses and reduce compliance costs. The distributors who have already registered under GST can cancel it to avail the benefits of RCM – provided they earn less than Rs. 20 lakh. Mutual Fund Distributors who have voluntarily registered for GST will have to wait for a year to cancel it. The distributors that earn less than Rs. 20 lakh are exempt from paying GST. Clarification is awaited on whether these distributors get any refund of the GST paid so far under RCM.
Every person registered under the Goods and Services Tax was required to file three parts of a monthly return. In GSTR-1, or the sales return, a registered person has to furnish details of sales made and income. Whereas in GSTR-2, service providers have to mention details of purchases made in the previous month. The third return, GSTR-3, is auto populated on the basis of the first and second return. The third return is for the computation of the net monthly GST liability. This return filing procedure remains the same, even for Independent Financial Advisors.
GST compliant sales and purchase invoices are required to file GST Returns. Fields like SAC, GSTIN of service provider & customer, Shipping Address, etc should be mentioned to make GST compliant invoice. Compliance is necessary to be able to claim credit on taxes paid on input. Services providers have to upload a summary of these invoices on the Government portal. Creating physical invoices and then uploading them on the portal is time consuming. There is also a room for errors. It is better to install an invoicing software with printing configuration. GST Edge goes one step further with a cloud based invoicing software.
As per decisions of 22nd GST Council meeting
that small and medium businesses and service providers
who have an annual aggregate turnover less than
Rs. 1.5 crore will henceforth file quarterly returns
as compared to monthly returns.
This is a major relief for the distributors and financial advisers.