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Ban on Commissions May Hit Taxman

Government may also suffer a severe hit from the abolishment of entry loads

The ban on entry loads being charged by distributors of mutual fund products may cost the government too.

With investors being empowered to pay what they think is the best amount that distributors advice deserves, the repercussions on service tax collections could be severe. According to reports, while earlier, the tax was deducted from the mutual fund concerned, but now the distributor will disclose the amounts he gets. It will definitely create a major administrative headache for authorities.

During the previous fiscal, service tax collections amounted to Rs 150 crore, according to a The Hindu Business Line report.

With expectations rife of investors not paying distributors any commission at all, or paying negligible amounts, the collections by the government are set to show a major fall.

Distributors would therefore be dependent on trail commissions only (money paid by mutual funds to the distributor on investment made). However, service charges on trail commissions are still slated to be collected from mutual fund houses.