Goods and Services Tax (GST) is a critical compliance consideration for portfolio managers and CAs offering PMS advisory services. This article explains the GST rates, compliance requirements, and practical considerations.
GST Applicability on PMS Services
Rate of GST
Portfolio management services are taxable at 18% under GST. The rate is applied as:
- Intra-state: 9% CGST + 9% SGST
- Inter-state: 18% IGST
Services Covered
GST applies to:
- Portfolio management fees (fixed and performance-based)
- Advisory services on investments
- Any other fees charged for portfolio management services
What CAs Must Know
GST Registration
If you are providing PMS advisory services, GST registration becomes mandatory and GST must be charged on service fees. The professional adds 18% GST to the invoice.
Invoicing Requirements
When invoicing for PMS advisory services:
- Mention your GST registration number
- Show the taxable value separately
- Show the GST rate and amount (9% CGST + 9% SGST or 18% IGST)
- Show the total amount payable
Input Tax Credit
The client pays both the service fee and the GST. Clients can claim Input Tax Credit (ITC) on GST paid, subject to eligibility.
Impact on Investor Returns
Tax Drag on Returns
Fees of 1-2 per cent, a tax drag of 2-4 per cent, plus GST leakage on fees: add these components and a PMS strategy that delivers 16 per cent gross can find itself delivering something closer to 11-13 per cent to the investor who holds it through a high-churn year.
GST on Management Fee
On the management fee, which is a part of the total expense ratio (TER) of the fund, GST at the rate of 18% is levied.
Practical Compliance Considerations
Statutory Levies Must Be Separate
Statutory levies like GST, Securities Transaction Tax (STT), and stamp duty must be charged on actuals and listed separately. The base expense ratio now separates fund management costs from statutory levies such as GST and securities transaction tax.
GST on Different Fee Components
| Fee Component | GST Rate |
|---|---|
| Fixed Management Fee | 18% |
| Performance Fee | 18% |
| Advisory Fee | 18% |
| Brokerage | 18% (on service component) |
Recent Regulatory Developments
Unbundling Requirement
SEBI has introduced unbundling requirements where statutory levies must be shown separately rather than being bundled into the headline expense cap.
Actuals Basis
Charges such as securities transaction tax (STT), commodity transaction tax (CTT), GST, stamp duty, exchange fees, and SEBI fees will now be levied strictly on actuals and shown separately.
Common Compliance Mistakes
1. Not Registering for GST
If you provide PMS advisory services, GST registration is mandatory.
2. Charging Incorrect Rate
Ensure you charge the correct rate of 18% GST.
3. Not Showing GST Separately
Statutory levies must be shown separately, not bundled.
4. Missing ITC Opportunities
Ensure you claim Input Tax Credit on GST paid on business expenses.
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on GST compliance for PMS advisory practices. Our tax and securities law experts help CAs understand GST obligations, implement compliant processes, and ensure regulatory compliance. Contact us for guidance on GST and other regulatory matters.