The sight of your income being reduced by way of tax (usually Tax Deducted at Source (TDS)) is not a welcome sign for most of you. It brings in the feeling of anxiety, doesn’t it! After all the hard work one puts in a particular task or service, the final compensation needs to be adjusted for TDS. But as we all know the Government has to levy a certain amount of service tax on certain services in order to boost its revenue by way of indirect taxes. However, in the Budget 2012, the Finance Minister introduced the concept of ‘negative list’ under the Service Tax regime. The services included under the negative list will be exempt from the Service Tax net.

Furthermore to revive the mutual fund industry tattered by various regulatory moves in the past, the Finance Minister has excluded the services rendered by a mutual fund distributor from the Service Tax net (forming part of the 34 items exempt from service tax). The move will put more cash in the hands of all classes of distributors, including Independent Financial Advisors (IFAs), corporate distributors and banks. For example, an IFA earning Rs 8,970 will earn Rs 10,000 post the changes. Apart from this the mutual fund distributors also stand to benefit from trail commissions, the fee paid by fund houses based on assets contributed by the distributor at the end of the year as the service tax won’t be applicable on trail commissions too.

However, Asset Management Companies (AMCs) await more clarity from the government on exemption of service tax for distributors. Distributors will be exempted from service tax only after the Finance Bill is enacted. Thus, AMCs are unlikely to exempt distributors from service tax from April, 2012 onwards.

Impact on the investors...
Though the above changes are not going to affect the investors in mutual funds directly, we may see a more pro-investor approach by the mutual fund distributors as the exemption of their services from the Service Tax net will give them some boost post the entry load ban enunciated by the Securities and Exchange Board of India (SEBI) in September 2009.

 

Our view:

We believe, that the exemption of services rendered by the mutual fund distributors to mutual fund or AMCs for distribution or marketing of mutual funds from the service tax net will help revive the mutual fund industry already reeling under pressure since the entry load ban in September 2009 followed by a series of regulatory moves for over a couple of years now.

Moreover, the distributors reluctant to sell and promote mutual funds will now have something to cheer for. They may also put in serious efforts to improve their services to their existing as wells as new investors in order to earn more remuneration (by way of brokerage). However, investors should act responsibly and should undertake proper checks and balances before investing in any mutual fund scheme.

 

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civki@uni-miskolc.hu May 11, 2012 AIG was be a best stock to invest if you plan to invest for a long term, because AIG is too big to fail and beside AIG no longer need government bailout money. if you invest in AIG are now you returning profit is 10-30 times in 3-5 years.

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