Understanding GST Exemptions for MFDs: Commission Income Below Rs. 20 Lakh

The Central Board of Indirect Taxes and Custom (CBIC) has identified Merchant Funds Distributors (MFDs) as service providers under the Harmonised System for Nomenclature (HSN) code 997152. This classification is crucial for determining the eligibility for certain tax exemptions under the Integrated Goods and Services Tax (IGST) Act 2017. This article aims to provide clarity on the applicability of the GST exemption for MFDs with a commission income of Rs. 20 lakh or less.

Eligibility Under CBIC Norms

Merchant Funds Distributors (MFDs) are considered as service providers under the HSN code 997152. This classification is detailed in the CBIC norms, and it applies to a wide range of financial services. According to the CBIC, commission income earned from various financial products such as National Pension System (NPS), life insurance, motor insurance, health insurance, peer-to-peer lending, private wealth management services (P2P lending), alternative investment funds (AIF), and other similar services fall under this category.

Threshold Income for GST Exemption

Under the Integrated Goods and Services Tax Act 2017, anyone providing inter-state tax services with an aggregate turnover of up to Rs. 20 lakh (computed on an all India basis) is exempted from obtaining a GST registration. This exemption also applies to special states where the limit is set at Rs. 10 lakh.

Applicability of GST Exemptions

Given that MFDs are classified under HSN 997152, they are eligible for the GST exemption if their commission income, including that from other lines of business, does not exceed Rs. 20 lakh. This means that MFDs can operate without the need to register for GST as long as their overall turnover is within this limit.

What Does This Include?

HMIS (Harmonised System for Nomenclature) 997152 covers a broad spectrum of financial services that fall under MFDs. This includes:

Brokerage Services: Bringing together purchasers and sellers of the same instrument for securities Sales and Redemption Services: Acting as a selling agent for units, shares, or other interests in a mutual investment fund, and managing the delivery and redemption services of government bonds Brokerage of Options: Providing brokerage services for financial options Commodity Futures: Offers brokerage services for commodities and futures, including financial futures Derivatives: Provides brokerage services for financial derivatives Clearing and Settlement: Computer-based clearing and settlement services for the interchange of debits, credits, and transfer of ownership of securities.

These services, when provided by MFDs, are eligible for the GST exemption as long as the aggregate turnover does not exceed the specified limit.

Conclusion

Merchant Funds Distributors (MFDs) can enjoy the benefit of GST exemption if their commission income remains below Rs. 20 lakh per annum. This important clarification is provided in the explanatory notes and further detailed under the HMIS code 997152. If you are operating as an MFD and would like to take advantage of these exemptions, ensure that your overall turnover does not exceed the specified limit.

Frequently Asked Questions (FAQs)

Is MFD classification under HSN 997152 essential for GST exemptions?

Yes, the classification under HMIS 997152 is crucial for determining eligibility for GST exemptions.

What is the maximum commission income under which MFDs can avail GST exemption?

MFDs can avail GST exemption if their commission income is below Rs. 20 lakh per annum.

Are there any states with different limits for GST registration?

Yes, some special states have a threshold limit of Rs. 10 lakh for GST registration.