GST on Mutual Funds
GST on mutual fund investing is not charged on the money you invest. The tax applies to the services wrapped around that purchase, and you meet it inside the scheme’s costs rather than at the point of payment. A different levy does come off the top, and it is not GST: stamp duty.
Two things decide how much of it reaches you, and the second changed this year. The law excludes securities from GST but taxes the service of arranging them. And from 1 April 2026 GST sits outside the expense ratio ceiling instead of inside it, which changes what the cap on your costs actually covers.
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and Specialised Investment Fund distributor, ARN-194216, and a distributor of portfolio management services registered with APMI, APRN10201. We do not recommend schemes and we are not tax advisers. The choice is yours.
What actually comes off a ₹1,00,000 investment
Five rupees, and it is stamp duty rather than GST. Units are allotted after stamp duty comes off, so the sum that buys units is slightly smaller than the sum you paid. A scheme document puts it plainly: “Allotment of units will be done after deduction of applicable stamp duty.”
How Stamp Duty Affects Your Investment
Illustrative calculation assuming stamp duty applies at 0.005% to the full amount paid.
The rate is 0.005% on the issue of a security other than a debenture, under Schedule I of the amended Indian Stamp Act 1899, in force since 1 July 2020. Mutual fund units are securities for this purpose. On ₹1 crore the duty is ₹500. SEBI sets out the position in its FAQs on the Indian Stamp Act.
Stamp duty is a levy on your transaction. GST is not. That distinction runs through the rest of this page: some charges reduce the units you get, and others sit inside the scheme’s running costs. They are not the same thing and they are not capped by the same rule.
Why there is no GST on the money you invest
Securities are carved out of GST at the definition stage, before any rate is reached. The Central Goods and Services Tax Act defines goods in section 2(52) as “every kind of movable property other than money and securities”, and services in section 2(102) as “anything other than goods, money and securities”.
Mutual fund units are securities. Buying them is therefore neither a supply of goods nor a supply of services, so no GST attaches to the subscription amount itself. The same applies when you redeem.
This is why a ₹1,00,000 purchase buys ₹1,00,000 of units at the applicable net asset value, with no tax line on the transaction. What the net asset value is on the day decides how many units that buys, and GST plays no part in it.
Both definitions sit in the CGST Act.
What GST on mutual funds is actually charged on
One line in the Act turns the service layer back on. The explanation to section 2(102) states that “the expression ‘services’ includes facilitating or arranging transactions in securities”. So while the units escape GST, the work of arranging, managing and selling them does not.
Three services sit in that layer for an ordinary scheme.
| The service | Who provides it | Who ultimately bears the GST |
|---|---|---|
| Managing the scheme | The asset management company |
Investor Inside the scheme’s costs |
| Distributing the scheme | The distributor |
Investor Inside the scheme’s costs |
| Executing the scheme’s trades | Brokers and exchanges |
Investor Inside the scheme’s costs |
None of these appears as a separate charge on your statement. They are deducted from the scheme before the net asset value is struck, which is why GST on mutual fund holdings is invisible unless you go looking for it in the expense disclosure.
The rate after the September 2025 change
Eighteen per cent is the standard rate. The GST Council’s 56th meeting replaced the four-tier structure with, in its own words, “a 2 rate structure with a Standard Rate of 18% and a Merit Rate of 5%”. For services, the change took effect on 22 September 2025.
A 40% de-merit rate also exists, for a short list of goods and services that does not reach this subject.
Financial services were not moved to the merit rate, so the services behind a mutual fund scheme are charged at the standard 18%.
The announcement is in the Press Information Bureau release on the 56th GST Council meeting.
One point of vocabulary, because it causes confusion on statements. GST splits into CGST and SGST where the supplier’s location and the place of supply are in the same state, and into IGST where they are in different states. Place of supply is determined by the GST law rather than by either party, and the total rate is the same under both headings.
Where GST sits in what you pay
Inside the expense ratio, deducted daily. A scheme’s costs come out before its net asset value is published, so the return you see is already net of them. GST on the management fee and on distributor commission forms part of that deduction, which is why it never appears on your statement.
How Total Expense Ratio (TER) Is Calculated
= Base Expense Ratio
+ Other Applicable Costs
The base expense ratio is the regulatory limit on what may be charged to the scheme. GST is a statutory levy, so it is the fourth line, not the first. That distinction did not exist in this form before 2026.
How the base expense ratio ceiling itself is set, and why it falls as a scheme grows, is explained in assets under management.
What changed on 1 April 2026
GST moved outside the base expense ratio. Under the framework in force from 1 April 2026, that ratio “shall exclude all statutory levies”, and the levies are charged on actuals, over and above the permissible limits. The total expense ratio still contains them, so the base figure does not cap your cost.
The practical difference runs both ways, and it is worth understanding before reading a factsheet.
The old position was not uniform, which is the part most summaries get wrong. GST was treated differently depending on what it was charged on.
GST Treatment: Before vs After
Mutual fund expense limits · Effective date: 1 April 2026
| GST on | Before 1 April 2026 | From 1 April 2026 |
|---|---|---|
| Investment management and advisory fees |
Already outside the cap
Scheme documents record that an AMC “may charge GST on investment management and advisory fees to the scheme in addition to the maximum limit” of the total expense ratio |
Outside the base expense ratio, on actuals |
| Other scheme expenses | Generally borne within the expense ratio limit | Outside the base expense ratio, on actuals |
| Brokerage and transaction costs | Treated under the separate rule for those limits | Outside the base expense ratio, on actuals |
What changed is the consistency, not the direction. The largest component, GST on management fees, was already chargeable above the cap. The 2026 framework applies that treatment to every statutory levy and states it as a single rule, which is why the base expense ratio figure is now lower while the total is not.
It also makes rate changes visible. Where GST previously sat within the ceiling for a given expense, a rise in the rate had to be absorbed or offset to stay under the cap, and the stated figure did not move.
The new arrangement makes it visible but additive. A scheme capped at a blended 1.50% base expense ratio now carries statutory levies on top of that figure rather than within it. The total is disclosed, but the cap no longer covers it.
Read the total expense ratio on the factsheet, not the base expense ratio, and check whether the figure quoted includes levies. Both numbers are now published, and they are not the same.
The change was approved at SEBI’s 212th board meeting in December 2025.
GST is not the tax on your gains
Two different taxes, two different events, and they are regularly confused with each other. GST is an indirect tax on services, borne through the scheme’s costs for as long as you hold the units. Capital gains tax is a direct tax on profit, and it falls due only when you sell.
GST vs Capital Gains Tax
Two different taxes, with different triggers and treatments
| GST | Capital gains tax | |
|---|---|---|
| Taxes what | Services supplied to the scheme | Your profit on redemption |
| When | Continuously, while you hold | When you sell |
| Paid by | You, through the scheme’s costs | You, on your return |
| Rate | 18% on the service value | Depends on the scheme and holding period |
The redemption itself attracts no GST, because a transaction in securities is not a supply of goods or services to you. An exit load is a different matter. Where one is charged, GST applies to it: scheme documents state that “exit load if charged to the Scheme shall be credited to the Scheme immediately net of goods and services tax”. The GST comes out of the load, and the scheme receives the remainder. The same applies to a switch or a systematic transfer that triggers a load.
What every redemption does create is a capital gains event, and the rules for that are set out in short term capital gain tax on mutual funds and long term capital gain tax on mutual funds.
Securities transaction tax is a third thing again, and it is not GST. It is charged on the redemption of equity-oriented units at 0.001%, deducted from the proceeds.
Common Questions
Not on the amount you invest. Mutual fund units are securities, and the CGST Act excludes securities from both the definition of goods and the definition of services. GST applies to the services around the investment, and you bear it inside the scheme’s costs. Stamp duty of 0.005% is a separate levy and is deducted before units are allotted.
Eighteen per cent, the standard rate. The GST Council moved to a two-rate structure in its 56th meeting, with a standard rate of 18% and a merit rate of 5%, effective for services from 22 September 2025. Financial services sit at the standard rate.
The redemption itself is a transaction in securities and is outside GST. If an exit load is charged, GST applies to that load: scheme documents state the load is credited to the scheme net of goods and services tax. Securities transaction tax of 0.001% on equity-oriented units and capital gains tax are separate again.
It is excluded from the base expense ratio, which the 2026 framework says shall exclude all statutory levies. It is still inside the total expense ratio. GST on management fees was chargeable above the cap even before 2026, so what changed is that one rule now covers every levy. Compare schemes on the total figure.
Because it is deducted inside the scheme before the net asset value is calculated, rather than charged to you directly. It appears in the scheme’s expense disclosure, not on your transaction statement.
No GST attaches to the instalment amount, because each instalment buys units and units are securities. Stamp duty applies to the units issued, as it does on any purchase, and the same service-layer costs apply inside the scheme.
Yes. Scheme documents state that “exit load if charged to the Scheme shall be credited to the Scheme immediately net of goods and services tax”. The GST is met out of the load itself, and the scheme receives what is left. The load and its rate are set out in the scheme information document.
They are the split of the same tax. Where the supplier’s location and the place of supply fall in one state, it is charged as CGST plus SGST; where they fall in different states, as IGST. Place of supply is fixed by the GST law. The total rate is identical either way.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.