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  • Tax Matters: What is the GST for distributors of mutual funds?

    If the supplier has crossed the threshold of Rs 20 lakh pan India, registration will have to be obtained for each place of business across the country from where supplies are made

    I am distributor of various mutual funds. What are my obligations under the goods and services tax (GST)?

    — Janaki Shah, e-mail

    Previously you had to pay service tax on the commission earned to the government under the forward-charge mechanism on brokerage earned. Now you will have to pay GST on brokerage earned from 1 July 2017. The forward brokerage mechanism will continue. If the distributor is not registered, the asset management company (AMC) will have to pay GST under the reverse-charge mechanism.

    If you do not have GST registration number, the AMC will deduct the GST and pay you net commission. The commission paid by the AMC will be inclusive of all taxes. So the net amount will be after deducting GST.

    Under the forward-charging mechanism, a distributor registered for GST, will get full commission from the AMC. Post receipt, the distributor will make the GST payment to the government.

    Every supplier who makes taxable supply of goods and/or services that attract GST and whose pan-India turnover in a financial year exceeds Rs 20 lakh (Rs10 lakh in special category states) is liable to register for GST. However, persons making inter-state supplies are required to obtain registration irrespective of their turnover.

    Registration under GST is not required if the person provides goods or services that are not liable to tax, wholly exempt from tax or is an agriculturist. Every supplier who makes taxable supply of goods and/or services only within the same state and whose pan-India turnover in a financial year is less than Rs. 20 lakh (Rs 10 lakh in case of special category states) is also not required to register.

    Special category states comprise Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.

    If the supplier has crossed the threshold of Rs 20 lakh pan India, registration will have to be obtained for each place of business across the country from where supplies are made. Every person who is liable to take a registration will have to get registered separately for each of the states where he has a place of business.

    The place of supply of services by the distributor is the location of the service recipient. The recipient is the person who is liable to pay the consideration. Accordingly, the recipient of service provided by a distributor will be the person with whom the distributor has executed the contract.

    Distributors provide service to AMCs. If a distributor sells a scheme of a fund that is based outside his home state, he has to take GST registration number. With most fund houses in Maharashtra, distributors outside Maharashtra will have to register for GST (being inter-state supply).

    Fund houses are expected to deduct GST from the commission of distributors if they haven't provided their GST number. So it is advisable for distributors to enroll for GST irrespective of their earnings. Distributors with a GST number can save some costs through input credit.

    GST-registered distributors need to pay GST under forward-charge basis. The invoice needs to be raised monthly. Fund houses will pay commission inclusive of GST for such distributors.

    An invoice must state if it is a tax invoice or export invoice. It should contain the GST integrated (GSTIN) number of the distributor, the SAC (for services provided by distributors, SAC will be 997159), correct type of GST (Central GST, state GST, Union Territory GST or integrated GST) and the signature of the issuer.

    These invoices will be issued in duplicate. The original copy will be marked and sent to the AMC. The copy will remain with the supplier. A person without GST registration can neither collect GST from his customers nor can claim any input tax credit (ITC) of GST paid by him.

    The taxable value of supply between unrelated parties is the transaction value, i.e., the amount actually paid or payable for the supply. However, when the consideration is not wholly in money, the taxable value will be the sum total of money and the monetary value of consideration in kind.

    Hence, apart from commission received, the value of performance-linked incentives, gifts, free trips sponsored by the AMC will be included in the taxable value of services. GST will be applicable on value so derived. GST will also be applicable on the transaction charges paid to distributors.

    The GST rate is 18% for distribution services, i.e., agent has to levy 9% CGST and 9% SGST.

    The Association of Mutual Funds of India (Amfi) has centralized the process of updating the GST number. It will be sharing the GST details of distributors as part of CDMS data with all the AMCs, registrars and transfer agents. Distributors can provide GST details through one of three options.

    In the first option, a link is provided on the Amfi website that the distributor will be required to click and input his Amfi registration number (ARN) code and permanent account details (Pan) details. Based on the details given, a one-time password (OTP) will get triggered to the ARN holder's registered mobile phone and email address. The distributor will be required to input the OTP in the relevant box and update state-wise GSTN numbers and upload the registration certificate images (http://www.camsonline.com/GST_amfi.aspx).

    In the second option, ARN holders can send e-mail from their registered email id to amfigst@camsonline.com with details of the GST numbers along with scanned copies of GST registration certificates.

    In the third option, hard copies of GST registration certificates along with a covering letter can be submitted at the nearest Computer Age Management Services Center. These will be scanned and entered into the Amfi ARN database.

     

    What will be the treatment of Central value-added tax (Cenvat) credit and Vat credit for stock in hand under the goods and services tax (GST) as on 30 June 2017?

    — P K Rai, e-mail

    Input tax credit (ITC) claimed in the return filed prior to 1 July 2017 will be transferred to the electronic credit ledger under GST. When the return filed under excise, Vat or service tax shows outstanding balance of ITC, the excess ITC in the return filed for period ended 30 June 2017 will be carried forward under GST by filing GST Form Tran-1.

    Excess Cenvat credit (shown in excise and service tax return) will be carried forward as Central GST. Excess Vat credit shown in Vat return will be carried forward as state GST.

    The balance is not allowed to be carried forward if the credit is not admissible under GST law, all returns for six months immediately preceding 1 July have not been duly filed under the excise, Vat and service tax law and credit relates to goods manufactured and cleared under exemption notifications as are notified by the government. Vat credit attributable to claims related to sales under Form C, F, E1, E2 and H is not to be allowed unless the forms are duly made available.

    When the entire credit availed has been utilized and there is no outstanding, excess balance of credit is reflected in the return, no credit can be carried forward under GST. There is no requirement to file any detail of the stock in GST Form Tran-1.

    A registered dealer (unregistered under previous law), manufacturer of exempted goods or provider of exempted services or work contract service provider availing benefit of notification no–26/2012-service tax dated 20 June 2012 can enjoy ITC of stock held on1 July 2017 and so also a first- or a second-stage dealer, registered as importer or a depot of a manufacturer. However, such inputs should have been used or are intended to be used for making taxable supplies under GST.

    The taxable person has to pass on the benefit of such credit by way of reduced prices to the recipient. He should be eligible for ITC on such inputs under GST and should be in possession of invoice or other documents evidencing payment of duty under the earlier law. Such invoices should not have been issued prior to 12 months before 1 July.

     

    Can you explain invoicing in the goods and services tax (GST) regime as there is confusion.

    — Subhash, e-mail

    A tax invoice is generally issued to charge the tax and pass on the input tax credit (ITC). A tax invoice must have name, address and GST identification (GSTIN) number of the supplier, invoice number, date of issue, name, address and GSTIN number of the recipient (if registered), harmonized system nomenclature (HSN) code, description of the goods and services, quantity of goods, value (after discount if any) and the rate and amount of GST.

    A bill of supply is similar to a tax invoice, except that it does not contain the tax amount as the seller cannot charge GST to the buyer. It is to be issued by a composition, unregistered or registered dealer selling exempted goods or services.

    When services are provided, the service provider is required to issue two copies of the invoice: an original for the recipient of service and a duplicate for the service provider.

    When goods are sold, three copies of invoice are to be prepared: the original for recipient, the duplicate for the transporter and the triplicate for the supplier

    All GST taxpayers are free to design their own invoice format. The GST law only requires that certain fields must mandatorily be in the invoice. The period prescribed for issuing invoice is different for goods and services: for goods, it is any time before its removal and delivery; for services, it is within 30 days from the date of supply of services.

    Small tax payers, like small retailers, doing a large number of small transactions for up to a value of Rs 200 per transaction to unregistered customers need not issue invoice for every such transaction. They can issue a consolidated invoice at the end of each day for all transactions done during the day. However, they should issue the invoice when the customer so demands.

    In normal circumstances, one copy of invoice is required to be carried by the transporter. However, the GST network (GSTN) provides facility to obtain an invoice reference number. If a taxpayer has generated the number, his goods need not be accompanied by paper invoice during transportation. The mechanism helps to address frequently reported problems such as paper invoices getting misplaced, mutilated, torn or lost in course of transportation of goods.

    To keep the compliance burden low for small tax payers, the GST law provides that tax payers with annual turnover of up to Rs 1.5 crore do not have to mention the HSN code of the goods in the invoices.

    Keeping in view the large number of transactions in the banking, insurance and passenger transport sectors, tax payers need not mention the address of the customer and the serial number in their invoices.

    When the goods are transported for delivery but the quantity to be supplied is not known at the time of removal, they may be removed on delivery challan. The invoice can be issued after delivery.

    The replies are only in the nature of guidelines. The tax counsellors and the publication are not responsible for any decision taken by readers on the basis of the same.
    Readers may e-mail their queries on direct taxation to: tax-matters@capitalmarket.com

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