New Delhi, May 31
Retail investors who directly invest in stock markets are expected to take the hike in service tax rates from June 1 on their stride.
This is even as their outgo on brokerage payment will go up due to the increase in service tax rate to 14 per cent from 12.36 per cent now. Service tax is applicable on the brokerage charged on clients for trades put through stock exchanges.
Satish Menon, Executive Director, Geojit BNP Paribas said that the cost of transaction would increase, but this would not impact the volumes of trades put by retail investors' who are delivery-based clients.
"Maybe for larger players, this service tax increase could impact their volumes", Menon told Business Line.
Derivatives and day trading are likely to be impacted the most since profit margin is less, Menon said.
MF DISTRIBUTORS
However, it is the mutual fund distributors - who will have to from June 1 fork out service tax on the commission received from fund houses - that are crying foul.
This is because the recent budget has clearly brought them under the service tax net with effect from June 1. Small time distributors of mutual funds are going to find the going tough and may face some squeeze in margins if they are required to pay the tax out of their pockets.
Raghvendra Nath, Managing Director & Chief Executive Officer, Ladderup Wealth Management said that mutual fund distributors would now be better off taking up insurance distribution.
"Mutual fund distributors' service tax woes can be addressed only if SEBI and the Government allow mutual fund houses to charge service tax on the schemes", Nath said.
Nearly 95 per cent of the investments into mutual fund schemes in India come through distributors.
Clearly, the interest of distributors' in mutual funds as a product will get reduced if the service tax levy is not addressed, he said.
Srivats.kr@thehindu.co.in