News Update

Call drops - Problem is mostly indoors, says DoTACES fails again; CBEC feels compelled to extend ST Return filing date to April 30PM reviews performance of key infrastructure sectorsCX/CUS/ST - To prefer an appeal before Tribunal, appellant needs to deposit 10% of amount of duty/penalty irrespective of amounts equivalent to 7.5% deposited by them before Commr.(A): LBFM clarifies Union Govt has no plan to levy income tax on agri incomeST - If contention of department is accepted that appellant cannot be treated as service provider then payment made should not be treated as that of service tax but as reversal of CENVAT credit availed - Appeals allowed: CESTATSwachh Bharat Bug Finally Catches Up With CBDTCBDT clarifies rent from letting out of space with amenities in SEZ to be treated as business incomeGujarat goes for massive bureaucratic reshuffle - 45 IAS officers transferredHigh Seas Sales in GST RegimeExpenditure tax - Composite charges collected by hotel can be quantified only upon conclusion of stay of guests: HCCus Appellants were bonafide transferee of DEPB scrip with no involvement in the forgery or fraud before DGFT no penalty imposable ROM allowed: CESTATST Maintenance of software cannot be taxed under 'Management, maintenance or repair service' prior to 01.06.2007: CESTATPension Regulator makes it online for retirement advisersCBI nabs several Plant Quarantine officials + CHAs & Shipping Agents in corruption casee-PRAN card launched for Atal Pension YojanaSitharaman to inaugurate Spices Farmers Producer CompaniesCyber Crime - INTERPOL detects 9000 C2 servers; websites infected with malware codeRental income from space equipped with ameniteis in SEZ to be treated as business incomeCBDT prescribes method for valuation of FMV of assets owned by Trusts / InstitutionsGovt eases PF rules to allow withdrawal for house purchaseIf Govt grants waiver of loan to farmers, it may cost 2% of GDP: Arvind SubramanianCX - Exemption - Sec 11C Notification - Court cannot direct Government to grant exemption - No violation of Article 14: SCGST Network to provide standard software for small tradersClearance of Gift and Personal Use parcels imported through Courier modeST - Tribunal ordering appellant to pay further sum is bereft of any rationale as substantial part of demand stood deposited: HCI-T - Special limitation imposed on EOU for claiming deductions, by way of insertion of Sec 80A(5) and Fourth proviso to Sec 10B(1), is not violative of Constitution of India: HCCX - Activity of assembling various computer components into working system not manufacture: CESTATMinto Road Govt Press to be 'reborn' at cost of Rs 339 Crore
 
Liability shift in Mutual Fund Sector

FEBRUARY 29, 2016

By Pratik Shah, Jigar Doshi & Ashesh Parekh, SKP Business Consulting LLP

THE Mutual fund (MF)/ Asset Management Company (AMC) was plagued with service tax burden in case of services received from mutual fund agents/distributors under reverse charge mechanism in 2015-2016 due to withdrawal of specific exemption in the Union Budget 2015. This provisionwas re-introduced after a break of 3 years (the same was liable under reverse charge before negative list regime w.e.f 1st July 2012). The principle behind taxing this transaction under reverse charge was due to the practical inability of the Government to have a control check on these agents/distributors.

The mutual fund sector is once again in the news as the Union Budget 2016 vide notification no 18/2016-ST r/w 07/2015-ST has shifted the liability burden for these services wherein services provided by mutual fund agents/distributor to a mutual fund or asset management company are being put under forward charge, i.e. the service provider is being made liable to pay service tax. Although the above amendment will be appreciated by the MF/AMC as they will be relieved from the liability of discharging service tax, the agents/distributors will be in a dilemma (as they will have to register and pay Service tax liability) if their service turnover increases the threshold limit of 10 lakh.

Further, this industry works in a unique way as far as documentation is concerned for services provided by agents/distributors. Currently, given the quantum of agents/distributors and mutual funds, there arealmost no invoices raised by agents/distributors to the funds. A central processing unit such as Computer Age Management Systems (CAMS) processes the spreadsheets and makes the payment to the distributors. Now that these agents/distributors will be covered under the tax net, MF/AMC will have to ensure that the agents/distributors adhere to compliances in terms of invoices, registration, etc. Thismight practically offset the benefitsof CENVAT credit available to the MF/AMC and agents on their input services.

On a positive front, this amendment might reduce the cost for the investor community as the service tax element will be absent in case of services provided by agents/distributors availing threshold exemption. Although the intention of the government to regularise this sector seems very vivid and intense, it would be interesting to see how the Government keeps track of these agents/distributors and checks tax evasion.

The above change is effective from 1 April 2016.

Also see Mutual Fund distribution - Service tax makes a comeback

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the sites)

POST YOUR COMMENTS