India's biggest tax reform, Goods and Services Tax or GST, is about to be a reality from July 1. Many mutual fund investors would be wondering whether GST will have any adverse impact on their investments. Well, the answer is: yes, it will have a marginal impact on mutual fund investments.
"The impact will not be that big, but it surely will change something for the mutual fund investors," says Neil Parikh, CEO, PPFAS Mutual Fund. He believes that the increase in service tax from 15 per cent to 18 per cent would make mutual funds a tad expensive. "The higher expense ratio will lead to lower returns in mutual fund schemes," adds Parikh. However, he says that the impact will be marginal.
The government has kept the service tax at a standard of 18 per cent for the financial services industry. This means a three per cent points hike in tax liability for distributors. "The distributors are going to face the heat of GST, but not all of them. The smaller distributors, earning less that ₹ 20 lakh per year, will be exempt from the taxes," says Mukesh Gupta, Director, Wealthcare Securities.
To avail the benefits of this new law, the distributors who earn less than ₹ 20 lakh per year will have to take GST registration. The new GST rules stipulate that the service tax has to be paid at a place where it is consumed. Mukesh Gupta believes "this rule will lead to a lot of compliance issues and hectic paperwork by the distributors, since their clients are spread all across the country."
Gupta also adds that the exemption limit of ₹ 20 lakh might be just for locally operating distributors and not for the ones with businesses in multiple locations. "I don't think the exemption can be availed by a distributor based in Delhi who bills to the head office in Mumbai," says Gupta. However, there is still confusion regarding the details of the new rules and everybody is trying to decode them according to their understanding.
Neil Parikh believes that the new tax rules have nothing to bother the mutual fund investors except the higher expense ratios. "There is no need for the AMCs or the investors to change their investment strategy. GST will not impact mutual fund investors specifically, except a hike in the TER," says Neil Parikh.
The original article could be seen here.