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1/23/2018 3 Ways GST will Impact on Financial Advisors - Network FP

3 Ways GST will Impact on Financial Advisors

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Arvind Rao is a founder of Arvind Rao & Associates. He is a Cer fied Membership Bene ts
Arvind Rao
Financial Planner & a Chartered Accountant based out of Mumbai. Founder
Arvind Rao & Associates NFP National
He focusses on delivering customized solu ons to complex financial Mumbai
problems of his firm's clients. Arvind's firm specializes in Tax View Profile NFP MasterClasses

management, Total Financial Management & Corporate Trainings. NFP FWCamps

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3 Ways GST will Impact on Financial Advisors
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The path-breaking historic law named Goods & Services Tax (GST) is now a reality in India. A lot has been wri en
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about this tax over the last 1-2 years regarding its formula on, difficul es faced in ge ng the law ready and finally
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its impact on the Indian businesses and consumers. While GST is expected to bring down the cascading effect of
mul ple tax levies on various goods in the country, whether the unifica on of various taxes under GST will help bring NFP Workshops

down prices of goods and services is debatable. NFP Client Connect

Impact on Financial Services NFP QPFP

As among other sectors, GST has a direct impact on financial services too. All the financial services including services
by Mutual Funds, Insurance Companies, Broking companies, Banks are covered under the ambit of GST. While all
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these services were already covered under the ambit of service tax too, the GST impact is restricted to the revision
of rates of taxes on the services. The GST rate of 18% is applicable on these services as compared to the lower rate Shrinarayan Choudhary
Mumbai
of 15% under service tax. For retail consumers of these services, it implies a higher outgo on account of the rate
revision in terms of the total cost of the financial transac on. The gross cost of transac ons such equity share
P V Subramanyam
brokerage plus GST, Demat annual charges plus GST, chargeable bank services plus GST, loan processing fees plus
GST has the poten al to burn a bigger hole in the end-consumers pockets, who are mere consumers of these
services and are not using these services to further any business. Insurance premiums including the medical and
Saurabh Mittal
other indemnity policies will see a hike in the total premium outgo due to the 3% differen al rate as discussed Circle Wealth Advisors
Mumbai
above. Likewise, term plan premiums and the applicable charges on investment-linked life insurance policies will also
bear the addi onal 3% GST. Vaishali Kale
V-Link Financial Services

Impact on Financial Advisors Mumbai

1. Registration Abhishek Rastogi


Independent Financial Adv…

The GST will also have a direct impact on financial advisors and their compliances. GST law has defined the minimum
threshold limit of Rs.20 lakhs in terms of annual turnover to qualify for registra on under the Act. All financial
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advisors whose annual commission/ fee income is expected to cross Rs. 20 lakhs will need to be registered under
GST and comply with the requirements therein. For advisors with lower than specified annual incomes, will have a
choice to con nue to operate as unregistered dealers.

Unregistered distributors/ agents

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1/23/2018 3 Ways GST will Impact on Financial Advisors - Network FP

The prescribed threshold does not imply that the unregistered distributors (Mutual Funds) and agents (insurance)
do not have to pay GST. The Mutual Fund companies and insurance companies are required to pay GST under the
Reverse charge mechanism (RCM) from the commissions paid to distributors and agents. In the case of unregistered
distributors and agents, the companies would deduct the GST liability due from the gross commission and pay out
the net amount to the distributors, which is similar to the prac ce followed under the Service Tax regime. This
implies that the impact of GST on distributors would be to the extent of the increase in the GST rate applicable on
commissions.

On the contrary, if the distributor gets himself registered (voluntary registra on is permi ed under the GST law even
if the annual income is less than the prescribed threshold), the company would pay the gross commission and it
would be the distributor’s obliga on to comply with the taxes. If the distributor avails a variety of services and goods
in the course of their business then as a registered dealer, he/ she is en tled to set-off the input GST paid against the
GST payable on their services. An unregistered distributor, although paying GST under RCM, would not be in a
posi on to claim these credits. Practically, it can be implied that it is mandatory for registration under
GST laws for distributors, irrespective of their turnover.

Insurance agents have a limited choice when it comes to paying GST or claiming credits. The GST payable on
insurance commissions are squarely covered under the RCM, while this absolves the agents from registering under
the law, it also prevents them from claiming any credits on GST paid on goods and services availed. Search …
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For investment advisors, who charge professional fees from clients, will now have to recover 18% GST from their
clients in addi on to their fees, which could make their services dearer to the clients.

2. Payment of GST under reverse charge


Registered distributors have to take special a en on when dealing with unregistered dealers during the course of
their business. Under the provisions of the GST law, if a registered distributor buys/purchases goods and services
from unregistered persons, then the applicable GST on the purchase amount has to be paid by the registered
person. This provision puts the onus on the registered person to deal only with registered persons or in the other
case, to pay the GST out of their own pockets. The credit of GST so paid can be claimed against the output GST
liability.

Most commonly used services by distributors in the course of their business like office rentals, house-keeping
services, computer maintenance, office sta onery and similar expenses are typical examples where the registered
distributor may be required to pay GST under reverse charge.

Keeping prac cal issues in mind, the Government has provided a daily limit of Rs. 5,000 for dealing with
unregistered persons, where the RCM provisions need not have complied.

3. Monthly Compliances
All registered distributors are required to file three types of returns every month – the 1st return is in rela on to
income, 2nd return relates to the purchases made and the 3rd return for the computa on of net liability for the
month. This totals up to 37 returns per year (including one annual return) with an addi onal audit triggered if the
turnover exceeds the specified limit (at Rs. 2 crores). In addi on, registered distributors and advisors would also be
required to upload invoices into the GST system, which may prove to be a cumbersome exercise.

To sum up, there would be an increased cost of compliance for all financial advisors under GST, especially for
advisors who operate out of mul ple ci es / States. Mul ple presences imply registra on for each State followed by
the same basic set of compliances as listed in the preceding paragraphs for each State. Imagine an advisor having
the presence in 3 states would be required to file approx.111 returns per year for his business ac vity. These factors
could prove to be an entry-barrier for small advisors/ distributors especially as the commissions have been moving
south.

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3 thoughts on “3 Ways GST will Impact on Financial Advisors”

JEENAL Sir can you elaborate on GST for insurance advisors?


July 28, 2017 Reply

ARVIND Network FP is planning a dedicated GST session shortly for


July 30, 2017 the master classes, can cover more of this topic during the
session. Thanks

Reply

KETAN VERY NICELY EXPLAINED.. THANKS


NANIVADEKAR Reply
July 28, 2017

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