Applicability of Section 24 of the CGST Act 2017 on Mutual Fund Agents

[Abhinav Jandial]

My client is a mutual funds agent and has been served SCN from department for Non-Payment of GST on commission received from AMC for the years 2017-18 to 2023-24. His turnover is less than 20 lakhs from 2017-18 to 2020-21. but the officer is charging him under section 24(vii) and applying section 76 on him (Tax collected but not paid to Government since the AMC has declared that whatever commsion we pay to agent is all inclusive of GST. But my client have been receiving 1% commission before GST and after GST also. Nor he has raised any invoice or collected any GST from AMC.

I think there is any circular or notification REGARDING NON-APPLICABILITY OF section 24 on mutual fund agents.

please advise

[Shilpi Jain]

In this case the agent is not making supply on behalf of anyone else.

Hence, registration should not attract.

[Shilpi Jain]

Sec 24(vii) states as below

persons who make taxable supply of goods or services or both ON BEHALF OF OTHER TAXABLE PERSONS whether as an agent or otherwise.

So registration requirement attracts only when supply is made on behalf of someone else

[KASTURI SETHI]

It is a interpretational dispute only...

(i) A mutual fund agent is NOT covered under Section 24 (vii) of CGST Act for the purpose of compulsory registration as the said agent is eligible for threshold exemption, if his receipts of commission are less than Rs.20 lakhs per annum.

((ii) Units in mutual funds is security and securities are neither goods nor services as per definition of 'services'; as per Section 2(102). Thus securities being neither goods nor services are non-GST supply.

(iii) As per Explanation to Section 2(102) of CGST Act, the activity of facilitating or arranging transactions in securities is taxable and not mutual funds (securities) itself. (Emphasis is on the activity of facilitating securities i.e. non-GST supply.

(iv) As per Section 2(5) of CGST Act. . an agent means who works for and on behalf of another person and sub-section (vii) of Section 24) is applicable to those persons who make taxable supply on behalf of taxable persons.

(v) A mutual fund agent is arranging or facilitating transactions in securities (non-GST supply). Thus the elements of 'taxable supply' and ''taxable persons' both are absent in the activity of mutual fund agent. mentioned in sub-section (vii) are not present in the activity of mutual fund agent. The agent is arranging or facilitating transactions in non-GST supply.

(vi) The activity of a mutual fund agent is taxable but the elements of 'taxable supply' and ';taxable person' as specified in (vii) are absent.

(vii) So the compulsory registration is not required.

[Abhinav Jandial]

Thank you so much Kasturi Sir for your detailed reply. Actually I have already explained this interpretational issue to the AO at the enquiry stage. Neither him nor his AC is accepting this. They are only emphasizing on the word agent referred to on the section 24. As a result they have issued a SCN. The AO is asking for any departmental clarification or circular. Please advise

[Shilpi Jain]

Pls have a look at Circular No. 57/31/2018-GST

[KASTURI SETHI]

There are three circulars. First two are relevant for you. You know  Board's circulars are binding on the department as per judgement of Hon'ble Supreme Court. These circulars synchronize with GST Acts. These are NOT contrary to the letter and spirit of GST Acts & rules. 

C.B.I. & C. Circular No. 57/31/2018-GST, dated 4-9-2018

*Note. – Corrected vide C.B.I. & C. Corrigendum F. No. CBEC/20/16/04/2018-GST, dated 5-11-2018

Circular No. 73/47/2018-GST, dated 5-11-2018

AI Summary

Mutual Fund Agent Challenges GST Liability on Commissions; Questions on Section 24(vii) & Section 76 of CGST Act A mutual fund agent received a show-cause notice for not paying GST on commissions from an Asset Management Company (AMC) for 2017-2024. Despite a turnover below Rs. 20 lakhs from 2017-2021, the department applied Section 24(vii) and Section 76 of the CGST Act, suggesting the agent collected tax but did not remit it. The agent argues that commissions are GST-inclusive and no invoices were issued or GST collected. Discussions indicate that mutual fund agents are not liable for compulsory registration under Section 24(vii) if their commission is below the threshold, as they do not supply on behalf of another taxable person. Circulars from the CBIC clarify the principal-agent relationship, emphasizing that mutual fund agents facilitate transactions in securities, which are non-GST supplies.