GST on exit load in Mutual Funds.

June 6, 2018

In it’s recent meeting of GST council, it was proposed and accepted to levy GST on the exit load charged by Mutual funds. How it’s going to impact us, the investor? Let’s discuss it and try to understand it here.

Before we move ahead, please do understand, Exit load is always charged on the redemption amount and not on your invested amount. So no matter, you are redeeming in profit or loss, if Exit load is applicable to your redemption, it’ll be levied on your redemption amount.

Let’s assume, we are redeeming Rs. 10000 (ten thousand) and the applicable Exit load is 1%. So here goes the calculations for pre GST and Post GST situations.

Case 1 – Pre GSTĀ 

A. Redemption amount = 10000

B. Exit load @ 1% = 100

C. Net redemption amount in your bank account = A – B = 10000 – 100 = 9900

Case 2 – Post GST

A. Redemption amount = 10000

B. Exit load @ 1% = 100

C. GST @18% of B = 18

D. Net redemption amount in your bank account = A – (B+C) = 10000 – (100+18) = 9882

Now one interesting thing for your information, the exit load is not the profit of AMC. As per SEBI mandate, it’s added back as part of assets of fund for the remaining investors. So, what’s the difference now for this exit load addition, for old investors, who are not redeeming?

Nothing. That 100 in our example was added in pre GST era as well as now also in Post GST era.

One important point, the exit load and GST there on, does not impact your Short or Long Term Capital Gain Tax liability. For tax calculation, your redemption amount is still 10000 in our example.

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