With less than 2 weeks remaining before the Goods and Services Tax (GST) comes into force. Some mutual fund investors are understandably worried how their investments might be impacted after this much awaited tax regime is implemented. As per available data, from July 1st onwards, all financial services including banking and mutual fund transactions will feature an 18% GST. Experts however are upbeat that the impact will definitely be marginal as the current tax rate is already 15% in the form of service tax on these transactions.
This optimistic assumption stems from the fact that the 3% increase would just get reflected in a slightly higher expense ratio for existing mutual fund investments. This would decrease the returns at the time of redemption or switching in a proportionate and marginal manner only. The other thing to note is that the burden of GST will primarily be a liability for the distributors and not all distributors are liable to pay GST either.
The reason for this is that the government has fixed a minimum earning limit of Rs. 20 lakhs annually for distributors to pay GST. Thus GST on mutual fund transactions needs to be paid only if a distributor earns over this amount in a year, which definitely provides much needed relief for the smaller distributors who operate from a single office within a local area. However to avail this benefit, all distributors irrespective of size will have to be mandatorily registered for GST.