October 12, 2017

Impact of GST on Financial Advisors with Recent Updates

Sadique Neelgund

Impact of GST on Financial Advisors with Recent Updates


“Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing.”

After the countless times that we’ve seen and heard these words on our television screens, they are entirely and unreservedly ingrained in our minds. This aforementioned warning is partly the reason to avail the services of Financial Advisors. The other part of the reason is the simple fact that these advisors are better informed as to what we can, and should do with our money.

Identical to banking and insurance services, mutual fund services will also see the marginal increase in charges as the earlier 15% Service Tax has been increased to 18% GST. The 20 lakh turnover threshold for small mutual fund distributors had become irrelevant as both registered and unregistered agents were required to pay 18% on their income. As a result, seeking advice from an investment advisor or an investment planner was expected to become slightly more expensive. However, the unregistered distributors and agents should be comforted by the last press release by the GST Council – the distributors that earn less than Rs. 20 lakh are exempt from paying GST.

You could consult your mutual fund distributor, but there’s a reason the investment experts exist. The professionals i.e. Broker-Dealer Advisors and Independent Advisors operate differently and the impact of Goods and Services Tax also differs.

3 Key points of GST for Independent Financial Advisors:


All financial advisors whose annual income, or commission, or fee is expected to rise above 20 lakh are legally required to obtain a registration. As per the new amendment, inter-state services provided when turnover does not cross 20 lakh (Rs 10 lakhs in special category states except J & K) limit are also exempt from registration. Before the release of the latest amendments, companies were required to deduct the GST liability from the gross commission and pay the net amount similar to the practice followed under the Service Tax regime. Contrary to this, if the distributor opts for voluntary registration, the company will pay the gross commission and the distributor would be obliged to comply with the taxes. The benefit of such a voluntary registration would also include the capability to avail credit on tax paid on input. Financial Advisors who provide services in more than one state would have to obtain separate registration in different states.

Securing a registration in one state would be a task in itself. Although the taxpayers have to get registered on the government’s online portal, the comfort ends there. There are as many as 83 fields to be filled while uploading documents in specific formats and sizes – all the while ensuring that there is no session time-out. Many GST registration services have been established in recent times to provide assistance for a speedy and hassle-free registration.

Reverse Charge Mechanism (RCM):

One of the provisions of GST was that if a registered agent or distributor was engaged in trading of goods and/or services with an unregistered distributor/agent, the registered person would be required to pay the GST applicable. Consequently, there would have been an obligation for registered dealers to undertake transactions with other registered dealers. The tax paid on input could be set off against the output GST.

The provision was inconvenient for Independent Financial Advisers and other small traders. The implementation of reverse charge mechanism has been deferred until March 2018. This move is aimed at benefiting small businesses and reduce compliance costs. The distributors who have already registered under GST can cancel it to avail the benefits of RCM – provided they earn less than Rs. 20 lakh. Mutual Fund Distributors who have voluntarily registered for GST will have to wait for a year to cancel it. The distributors that earn less than Rs. 20 lakh will be exempted from paying GST. Clarification is awaited on whether these distributors get any refund of the GST paid so far under RCM.


Every person registered under the Goods and Services Tax was required to file three parts of a monthly return. In GSTR-1 or the sales return, a registered person has to furnish details of sales made and income thus generated whereas, in GSTR-2, details of purchases made in the previous month have to be provided. The third return, GSTR-3, will be auto-populated on the basis of the first and second return. The third return is for the computation of the net monthly GST liability. This return filing procedure remains the same, even for Independent Financial Advisors.

GST compliant sales and purchase invoices are required to file GST Returns. Certain fields like SAC (Service Accounting Code), GST Identification Number of the service provider as well as that of the customer, Shipping and Billing Address, etc have to be mentioned on the invoice to make it GST compliant. Compliance is necessary to be able to claim a credit on taxes paid on input. A summary of these invoices has to be uploaded on the Government portal. Creating physical invoices and then uploading them on the portal would not only be time-consuming but would also leave a room for errors. It would be far more convenient to install an invoicing software with printing configuration.

The compliance was expected to become more tedious with 37 returns (3 monthly and one annual return). For professionals providing their services in more than one state, returns for the different verticals would have to be filed separately, which would mean increased paperwork. It was announced at the 22nd GST Council meeting that small and medium businesses and service providers who have an annual aggregate turnover less than Rs. 1.5 crore will henceforth be required to file quarterly returns as compared to monthly returns. This is a major relief for the distributors and financial advisors.

One response to “Impact of GST on Financial Advisors with Recent Updates”

  1. “Mutual Fund Distributors who have voluntarily registered for GST will have to wait for a year to cancel it.” What about those who had applied and registered for GST with cited the reason as “Inter state supply” and not having more that Rs 20 lakh turnover. Can they cancel their GST no within current financial year?

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