Impact of GST on Asset Management Companies

The GST 2.0 rate rationalisation has become effective from 22nd September 2025, and it has introduced substantial changes to the GST tax structure that will have its impact on the functions and roles of Asset Management Companies (AMCs) vis-à-vis their Tax liabilities. The shift simplifies rate slabs and directly impacts the taxability of services provided by AMCs—especially in mutual fund, portfolio management and allied financial services.

For a simple understanding, an asset management company (AMC) is a firm that invests pooled funds from clients, such as individuals, institutions, or organizations, into various financial instruments like stocks, bonds, real estate, or other assets. The goal is to grow the client’s’ wealth over time while managing risk, based on the clients’ investment objectives, risk tolerance, and time horizon. AMCs typically offer services like mutual funds, exchange-traded funds (ETFs), hedge funds, or customized portfolios. They charge fees, often a percentage of assets under management (AUM), for their expertise in selecting investments, diversifying portfolios, and handling administrative tasks. This amount is treated as a “consideration” for the Taxable Supply.  In essence, AMCs act as professional money managers, aiming to maximize returns for their clients while aligning with their financial goals.  Now the mute question is what activities undertaken by an Asset Management Company are Taxable under GST and what is not !

Taxable and Non-Taxable Supplies for AMCs

Taxable Supplies: –

A discussion will help us to understand the profile of their taxable activities.

• Management and advisory services: Asset management and portfolio management fees, mutual fund advisory services and similar financial advisory are subject to 18% GST post 22 September 2025, as was before. There is no change in taxability and the levy of Tax @ 18 % on such activities after GST 2.0 reforms. Thus, all substantive SEBI-registered mutual fund service fees towards management, advisory, distribution are taxable and only underlying security transfers and exempted categories specified by law are not taxable under GST post-September 2025. In fact  most services including management fees, advisory services and distributor or agent commissions related to mutual funds continue to attract 18% GST under the forward charge mechanism. Individual mutual fund agents or distributors remain exempt only if their annual aggregate turnover is below the ₹20 lakh registration threshold (₹10 lakh in special category states), otherwise GST at 18% must be charged and remitted on all commission and service income.  The core mutual fund investment transaction  like purchase, redemption, or switching of units is not taxable under GST, since securities are outside the scope of GST law. All other managerial, advisory, or intermediary services provided by SEBI-registered entities in relation to mutual funds remain fully taxable at 18% GST post-September 2025, in line with existing practice.
• Other fee-based income: Transaction charges, distributor commissions (not exempted) and any non-exempted charges/fees are also subject to 18% GST.

To sum up, Services by Asset Management Companies (AMCs) are classified as taxable under HSN 997152 which includes a range of activities broadly associated with brokerage and related securities services. The HSN 997152 specifically covers “Brokerage and related securities and commodities services including commodity exchange services” and applies an 18% GST rate. The following are a list of illustrative though not exhaustive services by AMCs (or their agents/intermediaries) are taxable under HSN 997152:

• Brokerage services for securities: Bringing together buyers and sellers of securities, including mutual fund units, shares, bonds, or derivatives, on behalf of clients.
• Acting as selling agent for mutual funds: Services where an AMC, or its distribution arm, acts as an agent facilitating subscription to or redemption of units in mutual funds for investors.
• Sales, delivery, and redemption services: Facilitating sales, delivery, and redemption of government bonds, mutual fund units, or other securities platforms as part of managed fund business.
• Brokerage of options and financial derivatives: Earned fees or commissions for brokering or facilitating trades in securities and derivative instruments.
• Clearing and settlement services for securities transactions: Including computer-based clearing and settlement (for transfer of ownership, not the underlying asset itself).
• These do not include portfolio management (which is separately classified under HSN 997153) or trust/custody/advisory services, which have distinct HSN codes.

Thus, core brokerage, selling, redemption, and transaction facilitation by AMCs or their appointed intermediaries are taxable services under HSN 997152 at 18% GST.

Exempt/Non-Taxable Supplies

The following activities does not attract GST liability.

• Dividend & Interest income: Dividends received by an AMC are not regarded as supply and hence, not liable to GST. Interest earned on deposits, government securities, or lending activities is generally exempted from GST as per Schedule III of CGST Act 2017 (activities/transactions not regarded as supply).
• Exports of services: If an AMC provides eligible portfolio management to overseas funds/entities and receives payment in convertible forex as prescribed by Reserve Bank of India, this is classified as zero-rated (treated as exports), and GST is not applicable. These transactions are eligible for Export incentives also.
• Other exempt activities: Services notified as exempt under specific notifications (e.g., government-mandated social sector fund management, etc.,) remain non-taxable. Section 7 (scope of supply), Section 9 (levy of GST), and relevant exemptions in Notification No. 12/2017 (Exempted Services) of CGST Act 2017 that govern taxation of Services provided by an AMC will have to be referred in this regard.  Further as recommended by the 55th GST Council, it has been clarified that no GST is payable on the penal charges levied by Regulated Entities, in compliance with RBI directions dated 18.08.2023, for non-compliance with material terms and conditions of loan contract by the borrower.  In this regard CBIC Circular No: Circular No. 245/02/2025-GST dated 28.01.2025 has been issued giving clarifications regarding applicability of GST on certain services including those rendered by AMCs.

For easy comprehension, here is an illustrative list (not exhaustive) of major services typically provided by Asset Management Companies (AMCs) along with their GST taxability status:

 Input Tax Credit:

While GST paid on business-related inputs is claimable as credit for taxable outward supplies, certain services such as insurance commissions on individual policies face restrictions or reversal of ITC following the latest CBIC clarifications. It has been clarified vide FAQs issued after the 56^th GST Council meeting that taxes paid on inputs like brokerage and commission for individual life or health insurance policies cannot be claimed as ITC, therefore the insurers cannot claim input tax credit (ITC) on such services. Prior 22-09-2025, insurers were availing ITC on many inputs and input services such as commissions, brokerage and reinsurance, etc. Out of these input services, reinsurance services are now exempted. With reference to ITC of other inputs or input services the same has to be proportionately reversed in terms of Rule 42 of CGST Rules 2017 wherever the output services are exempted. This means that taxes paid on inputs like brokerage and commission for individual life or health insurance policies cannot be claimed as ITC, adding to insurer’s costs, eventually increasing the premium amount. AMCs can claim credit for GST paid on inputs (such as office supplies, professional fees, software subscriptions, and other services) against GST payable on taxable outward supplies like fund management and advisory services. This credit reduces the net GST payable, lowering the effective tax burden. By claiming ITC, AMCs avoid the cascading effect of taxes (tax on tax) which helps free-up working capital and improves liquidity, enabling better operational and financial management.

After the GST rate rationalisation effective from 22nd September 2025, certain Asset Management Company (AMC) services may lose ITC eligibility or require reversal of previously claimed ITC due to changes in taxability or exemption status.  The impact has been tabulated as below:-

The important points to note are AMC’s core services in portfolio management, advisory, and mutual fund distributions remain taxable at 18% with full ITC availability. ITC accumulated on inputs/input services for supplies that become exempt post rationalisation must be reversed as per Section 17(2) CGST Act 2017 and Rule 42/43 of CGST Rules 2017 provisions. ITC reversal includes direct and proportionate common credit apportionment obligations under Rule 42 and Rule 43 of CGST Rules, 2017. Existing ITC balances availed before 22nd September 2025 can be utilized against output tax liabilities but new credits on exempt supplies cannot be claimed forward.

Generally, the AMCs adopt Cum-Tax Valuation and requires reverse workings. To have better grasp on the supply chain of AMCs, let us peep through the following example:-

Illustration for First Stage: Commission Earned by say M/s. ABC Ltd from say M/s. ICI Mutual Funds. Assume M/s. ABC Ltd (a registered mutual fund distribution company) provides distribution services to M/s. ICI Mutual Funds and receives a total payment of Rs. 100, which is inclusive of GST (cum tax value).  The applicable GST rate is 18%. Since this is under forward charge mechanism (as M/s. ABC Ltd is registered), M/s. ABC Ltd is liable to pay the GST to the government.  So,

 Reverse Workings (Cum Tax Valuation):

• Total amount received (cum tax value) = Rs. 100
• Taxable value (commission excluding GST) = Total amount / (1 + GST rate) = 100 / 1.18 ≈ Rs. 84.75
• GST liability = Taxable value × 18% = 84.75 × 0.18 ≈ Rs. 15.25

Explanation: M/s. ABC Ltd receives Rs. 100 from  M/s. ICI Mutual Funds, out of which Rs. 15.25 is the GST component that M/s. ABC Ltd must deposit with the government being the Supplier of Service. The net commission retained by M/s. ABC Ltd is Rs. 84.75.

Illustration for Second Stage:

Transaction with their Consumer Mr. Ram (Unregistered Person)

Assume in the next part of the chain, Mr. Ram, a sub agent (an unregistered person under GST) provides sub-distribution or similar services to M/s. ABC Ltd by way of business promotion and M/s. ABC Ltd decides the total cost (cum tax value, including the effective GST under RCM) for this transaction is Rs. 100. Since Mr. Ram is unregistered, this supply falls under the reverse charge mechanism (RCM) for specified services like mutual fund distribution. Under RCM, M/s. ABC Ltd (as the registered recipient) is liable to pay the GST directly to the government, (which has to be paid in cash but subsequently can be claimed as ITC if eligible)  while paying only the taxable value to Mr. Ram, the supplier of business promotion service.

Reverse Workings (Cum Tax Valuation):

• Total cost to ABC Ltd (cum tax value) = Rs. 100
• Taxable value (amount paid to Mr. Ram, excluding GST) = Total cost / (1 + GST rate) = 100 / 1.18 ≈ Rs. 84.75
• GST liability under RCM = Taxable value × 18% = 84.75 × 0.18 ≈ Rs. 15.25

Explanation: M/s. ABC Ltd pays Rs. 84.75 to Mr. Ram (since he cannot charge GST as unregistered) and separately deposits Rs. 15.25 as GST under RCM to the government (which has to be paid in cash but subsequently can be claimed as ITC if eligible). The total outflow for M/s. ABC Ltd is Rs. 100, with the GST liability borne by M/s. ABC Ltd.

If Mr. Ram is a registered person forward charge mechanism will apply, and calculations as illustrated in the first stage will apply where Mr. Ram will be liable to pay the taxes.  In this case also M/s. ABC Ltd., will be eligible to take ITC on the taxes paid.

Summary of GST Changes for Asset Management Companies after GST 2.0

GST 2.0 refers to the next-generation reforms of India’s Goods and Services Tax (GST) regime, introduced as a major overhaul to simplify the tax structure, reduce compliance burdens, and stimulate economic growth. Approved by the 56th GST Council on September 3, 2025, it took effect on September 22, 2025.  Well, before 22 September 2025 the services provided by AMCs primarily faced an 18% GST on management services including mutual fund management and advisory. After 22 September 2025, the standard 18% rate continues for most financial and management services.  No GST registration threshold change for service providers including AMCs.  The threshold limit remains at an Annual Aggregate Turnover of Rs.20 lakhs in general and Rs.10 lakhs for States of special status.

Tabulated Comparison: Before and After 22-09-2025

Before bidding adieu……

The process reforms and structure changes (inverted duty corrections, clarified exemptions, easier compliance and return filings) offer indirect benefits to AMCs in operational efficiency. While many AMC services continue to enjoy full ITC benefits, exemptions emerging from GST 2.0 rate rationalisation especially relating to insurance-linked services or newly exempt supplies impose significant ITC reversal and blocking obligations for AMCs. Strict segregation of input credits and diligent compliance to reversal provisions are critical post-September 2025.  Understanding the Taxability of Supply of services and managing ITC eligibility helps in a large way AMCs in tax planning and cost control especially after GST rate rationalisation, where input and output tax rates changed, impacting credit flow. Proper management of reversals and blocked credits further supports financial efficiency.

Jai Hind!!!!