In a big relief to small mutual fund distributors, the government has proposed to exempt service tax levied on agents earning less than Rs 10 lakh commission annually.
However, those distributors earning more than the threshold limit will have to pay service tax of 14 per cent.
The move is aimed at increasing retail participation in mutual fund (MF)industry.
"The services provided by MF agent/distributor to a MF or AMC, are being made taxable under forward charge with effect from April 1, 2016 so as to enable the small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of Rs 10 lakh per year, subject to fulfillment of other conditions prescribed," as per Budget document for 2016-17.
The industry has long been seeking relaxation on service tax for mutual fund distributors.
At present, there are around 5,000 active mutual fund distributors and only 1,200 of them earn more than 10 lakh annually, according to an estimate.
Financial Intermediaries Association of India (FIAI), a trade body of financial products distributors in the country, said, "Many small distributors, IFAs and sub-brokers below the threshold of Rs 10 lakh annual income to be exempted from the service tax being levied on their commissions."
There are over 40 asset management companies (AMCs) that manage funds of about Rs 12.74 lakh crore.
"It is a good move and facilitate Independent Financial Advisors (IFA) whose inflows will increase and will have more funds available at their disposal to improve their distribution structure," Quantum AMC Chief Executive Officer Jimmy Patel said.
Mutual Funds pool together money from many investors and invest it on their behalf, in accordance with a stated set of objectives.
