Service tax liability on mutual funds, not their agents

In a big relief for mutual fund (MF) agents, the government has said distributors will not have to pay tax on services provided by them and the liability in this regard would entirely be on the fund houses.

In a public announcement, the Central Board of Excise and Customs (CBEC) said that MF agents and distributors do not have the liability to pay service tax with effect from April 1.

“Liability to pay service tax on service provide by mutual fund agents and distributors is on mutual fund and Asset Management Companies (AMCs) and not on mutual fund agents and distributors,” it added.

Earlier, Finance Minister Arun Jaitley, in his budget announcement, had proposed to withdraw service tax exemption on services provided by mutual fund agents or distributors of asset management companies (AMCs).

Since then, MF distributors have been demanding that they should not be burdened with this service tax as they were upset with the provision.

With the government raising the service tax rate to 14 per cent from 12 per cent earlier in this year budget, it would have become difficult for distributors as they work on commission basis.

At present, there are around 6,000 active MF distributors and 44 AMCs, which together manage assets worth nearly Rs 12 lakh crore.

On MF is an investment vehicle with a pool of funds collected from investors to buy securities such as stocks, bonds, money market instruments and similar assets.