Mutual Fund Distributors Eyes Tax Relief Amid SEBI's Expense Ratio Changes

Mutual fund distributors are appealing to the Association of Mutual Funds in India (AMFI) for adoption of the reverse charge mechanism (RCM) to address income loss caused by SEBI’s revised total expense ratio (TER) regulations, as per The Mint news report.  

The new structure, enacted in December 2025, separates GST and regulatory levies from the base expense ratio, altering how distributor commissions are calculated. 

Impact of SEBI's Revised Expense Ratio Structure 

The new TER model only includes the base expense ratio in distributor payments. Taxes like GST are charged separately, affecting distributors exempt from GST.  

This change inadvertently reduces their income by about 15%, shifting the compliance burden to these distributors who cannot issue GST invoices the same way larger distributors can. 

Challenges Faced by Small Distributors 

Small distributors exempt from GST registration or under the GST composition scheme cannot recover the GST component easily, affecting their earnings.  

Proposals to include mutual fund distributors under RCM are being considered, which would make AMCs remit GST directly to the government instead of through distributors. 

Read More: UTI Mutual Fund Updates UTI Liquid Fund: Minimum Application, Additional Investment and Redemption Amounts Revised! 

Proposed Solution by AMFI and Current Scenario 

The AMFI has been approached by distributors to adopt RCM, a model where AMCs would handle GST payments directly.  

Currently, insurance agents benefit from RCM, allowing them similar tax treatments. Implementing such a mechanism for mutual fund distributors could mitigate lost income seen under current TER norms. 

Conclusion 

The TER overhaul by SEBI has resulted in a near 15% income reduction for small distributors exempt from GST. The proposal to adopt RCM aims to provide relief by adjusting the GST payment process, potentially aligning distributor treatment with their insurance counterparts. 

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