KFin Technologies (KFintech), one of the registrar and transfer agents (RTAs), has issued a process note outlining how the revised brokerage mechanism will operate operationally for asset management companies (AMCs) and distributors.
The move follows a broader overhaul of the TER framework announced by the Securities and Exchange Board of India (SEBI) in December 2025. SEBI decided to unbundle statutory levies from TER, meaning GST on management fees, Securities Transaction Tax (STT), and stamp duty will be excluded from the base TER and disclosed separately from April 1, 2026.
At the time of SEBI’s announcement, industry participants expected that GST embedded in distributor brokerage would also be separated. However, the operational mechanism for brokerage payouts was clarified only recently through KFintech’s note.
What changes from April 1?
Under the current (pre-April 2026) structure, brokerage rates paid to mutual fund distributors are GST-inclusive. For example, if a brokerage rate is 1%:
A GST-registered distributor effectively receives 0.85% as base commission plus 0.15% as GST.
An unregistered distributor receives the full 1%, effectively retaining the embedded tax component.
From April 1, 2026, AMCs will shift to GST-exclusive brokerage rates.
Using the same 1% illustration, the rate will be “de-grossed” to approximately 0.85% (1 ÷ 1.18). Under the new system:
A GST-registered distributor will receive 0.85% plus GST (bringing the total payout back to 1%).
An unregistered distributor will receive only the 0.85% base commission.
This effectively removes the disparity between registered and unregistered distributors. Unregistered distributors will no longer receive the 18% tax component embedded in earlier payouts.
KFintech’s system will compute GST separately. The GST portion will be released to registered distributors only after they remit the tax to the government and upload proof from the GST portal. The revised process will apply to new investments, existing assets, and even previously withheld brokerage.
What it means for distributors
According to Aditya Agarwal, Co-founder of Wealthy.in, a wealth management platform for mutual fund distributors, the impact will primarily be felt by distributors who are currently not registered under GST.
India has over 2 lakh ARN holders, with more than 25,000 new entrants joining the distribution ecosystem each year. Agarwal estimates that distributors operating below the ₹20 lakh GST registration threshold could see an income impact of roughly 15% under the new structure.
However, he noted that the broader industry context remains supportive. Mutual fund distributors manage nearly half of the country’s equity assets under management, and market growth could offset income compression over time. Even without fresh inflows, mark-to-market appreciation in a growing market may neutralize the impact within a year, he said.
Agarwal added that the shift could encourage more distributors to opt for GST registration, improving compliance while stabilising cash flows. He also pointed out that distributors working through larger platforms may see a lower impact, as scale efficiencies, cross-sell opportunities, and technology-driven processes could cushion earnings.
Operational rollout
As per KFintech’s process note:
- Brokerage rates will be reset as GST-exclusive from April 1, 2026.
- Only base brokerage will be released initially.
- GST amounts will be tracked separately and released upon submission of GST payment proof.
- AMCs will communicate the changes to distributors.
The restructuring is part of SEBI’s broader effort to improve transparency in mutual fund expense disclosures and standardise how statutory levies are treated within TER.
ALSO READ | New mutual fund classification rules introduced: How schemes will be structured