GST impact on Distributors

GST Impact on Mutual Fund Distributors in India

Understanding the Shift from TER to BER

By Chidrup Jain, CFP, CTEP  |  The Excelist Learning Solutions Pvt. Ltd.

Based on SEBI (Mutual Funds) Regulations, 2026 & AMFI Circular No. 123/2025-26

What Has Changed and Why Should You Care?

If you are a Mutual Fund Distributor (MFD) in India, something very important has changed from 1st April 2026 that directly affects your income. The Securities and Exchange Board of India (SEBI) has introduced new rules about how your commission (brokerage) is calculated and how GST is handled.

In simple words, until now your commission included GST. From April 2026, GST has been separated from your commission. This may sound like a small technical change, but for many distributors, especially those who are not GST-registered, it means a direct drop in take-home income.

GST was earlier hidden inside your commission. Now it is visible and separate.

What is TER and What is BER?

TER (Total Expense Ratio) was the old system. It was a single number that included everything — the fund house’s management fee, your distribution commission, GST, stamp duty, SEBI fees, brokerage costs — all bundled together under one cap.

BER (Base Expense Ratio) is the new system. It includes only the core fund management and distribution costs. Everything else — GST, STT, stamp duty, SEBI fees — is now shown separately and charged on actual amounts.

Think of it like this: earlier, your electricity bill, water bill, and society maintenance were all shown as one single amount. Now, each is shown separately so you know exactly what you are paying for.

TER = BER + Brokerage + Statutory Levies (GST, STT, CTT, Stamp Duty, SEBI fees)

SEBI notified this change on 14 January 2026. AMFI issued a detailed operational circular (No. 123/2025-26) on 12 March 2026 to implement this across all AMCs from 1 April 2026.

How Does Your Brokerage Change?

This is the part that directly impacts your pocket.

Before (Old System): Your commission rate was quoted inclusive of GST. For example, if your trail commission was 1.00%, that 1.00% already had GST built into it. You received the full 1.00% without any separate GST calculation.

After (New System): Your commission rate is now quoted exclusive of GST. The same 1.00% rate becomes approximately 0.85% as the base rate, and GST is calculated separately on top of it.

The conversion formula used by RTAs is:

New Base Rate = Old Rate – (Old Rate × 18 / 118)

For example, if your old rate was 1.00%: GST component = 1.00% × 18 / 118 = 0.1525%. New base rate = 1.00% – 0.1525% = 0.8475%, rounded to 0.85%.

This new rate applies to both new assets acquired from 1 April 2026 and existing assets as of 31 March 2026. Payments under the new system begin from May 2026 onwards.

How Different Types of MFDs Are Affected

The impact of this change depends entirely on your GST registration status. Let us look at three types of MFDs:

1. GST-Registered MFD (Regular Scheme)

If you are registered under the regular GST scheme, you are in the best position. You receive the base commission (0.85%) from the AMC. On top of that, you can submit a valid tax invoice to the AMC/RTA, and they will release the GST component (18%) separately to you. You then pay this GST to the government and can claim Input Tax Credit (ITC) on your business expenses like office rent, software, and travel. Your net income remains largely the same as before.

2. Unregistered MFD (No GST Registration)

If you are not registered for GST (typically because your turnover is below ₹20 lakh per year), you will only receive the base commission of 0.85%. The AMC will not pay any GST component to you because you cannot raise a tax invoice. This means your effective income drops by about 15% compared to what you were receiving earlier.

3. Composition Scheme MFD — The Worst Hit

If you are registered under the GST Composition Scheme, AMCs treat you as “unregistered” for the purpose of GST release. You receive only the base commission, get no GST from the AMC, but still have to pay 6% GST to the government from your own reduced income. This creates a double loss of over 20%.

Here is a comparison for an MFD with ₹1 Crore AUM:

Composition MFDs face a double hit: no GST from AMC + GST still payable to the government.

Why Are AMCs Now Asking for Invoices?

In the past, many GST-registered MFDs did not file their GST returns on time even though AMCs were paying the GST component to them. This created serious compliance and liability risks for AMCs. The GST paid by AMCs was not reaching the government. When AMCs checked their GSTR-2B, the amounts did not match, creating ITC reversal risk.

To address this, AMFI and AMCs have adopted a structured approach: the base brokerage is paid from the BER to everyone, while the GST component is paid separately from the Statutory Expense Ratio but only after proper invoicing and compliance verification. This ensures better GST compliance tracking, reduced risk exposure for AMCs, and clear segregation between brokerage and tax components.

No invoice = No GST payment. Compliance is now directly linked to your income.

The New GST Process — Step by Step

Important: Submit your invoice by the 15th to receive GST payment in the same month. After the 15th, payment moves to the next cycle.

Reconciliation and Clawback Risk

Reconciliation is the process where AMCs match the GST amount they paid to you against what shows up in your GSTR-2B. This verification happens quarterly.

If amounts match: Everything is confirmed. No action needed.

If there is a mismatch: The AMC will recover the excess GST from your future brokerage payments. This can happen due to late GSTR-1 filing, invoice mistakes, non-filing of returns, or even small rounding differences.

Impact on Small Distributors

If your annual turnover is below ₹20 lakh, you are not legally required to register for GST. But under the new framework, not having GST registration means your take-home income drops by about 15%. You also cannot claim ITC on business expenses like rent, computers, software, and travel.

Even if GST registration is not mandatory, it may be worth considering voluntarily to protect your income.

Multiple ARNs in a Family? Go Corporate.

Many families run 2–4 separate ARNs. Under the new system, each ARN needs its own GST registration, separate invoices, and separate filings. This multiplies costs and risk. Some family ARNs may fall below the ₹20 lakh threshold individually and lose the GST component entirely.

The solution: Merge all family ARNs into one Corporate ARN under a Private Limited Company or LLP. One entity, one GST registration, one set of books, better negotiation power, tax-efficient structure, and built-in succession planning.

Your Action Plan

The Bigger Picture

The mutual fund distribution business in India is moving from informal (no GST, cash-based) to formal (GST-registered, invoice-based) to corporate (Pvt. Ltd./LLP, full compliance, scalable). Those who adapt early will not only protect their income but will be better positioned for growth.

Structure decides income. Compliance is now income-linked. Those who adapt will thrive.

A Final Thought

Law is not by choice. It is an obligation. Once you fall within its scope, compliance is mandatory — not optional. Whether it is GST registration, invoice submission, or return filing, the rules apply equally to everyone. Your income is now directly tied to your compliance. The earlier you prepare, the better you are protected.

Disclaimer: This blog is for educational and informational purposes only. It does not constitute professional tax or legal advice. Please consult your CA/tax advisor for specific guidance. Based on AMFI Circular No.123/2025-26 dated 12 March 2026 and SEBI (Mutual Funds) Regulations, 2026. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.