Stock Broking Services under service tax
“Stock-broker” means a person, who has either made an application for registration or is registered as a stock broker, in accordance with the rules and regulations made under the Securities and Exchange Board of India Act, 1992.
“Taxable service” means any service provided or to be provided to any person, by a stock-broker in connection with the sale or purchase of securities listed on a recognized stock exchange.
‘To any person’ being the service recipient, ‘by any other person’ means the service provider
“Recognised stock exchange” has the meaning assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).
“Securities” by definition cover every form of securities traded in a stock exchange and these include:
- Shares, debentures, bonds, and any other marketable securities,
- A stock derivative (Futures and options are the main types of derivatives on stocks),
- Units or any other instruments issued to an investor under mutual funds, and
- Government Bonds etc
Considering that the entire broking charges are taxable at the hands of stock broker and a large number of small sub-brokers have to comply with the service tax laws, the sub-brokers have been excluded from the purview of service tax by making suitable amendment in the definition of stock-broker. It is also clarified that such sub-brokers should also not be charged to service tax as commission agent under Business auxiliary services.
Services not covered in the ambit of service tax
- In case of incomplete transactions, where no brokerage has been charged by the stock-broker, the value of taxable service is Nil and no service tax is applicable.
- If the stock-broker offers free service and no brokerage collected, no service tax is payable.
- Delivery/DMAT charges on shares are not commission received by a stock-broker and therefore not chargeable to service tax.
- Stamp charges recovered by the broker are not includible in the value of the taxable service, as it is a local tax paid to Government.
Services covered in the ambit of service tax
- Jobbing – prior to 10.09.2004, transaction between two brokers in the same exchange, on principal to principal basis where no investor is involved was not chargeable to service tax. As ‘to an investor’ has been replaced by ‘to any person’ with effect from 10.09.2004, such transaction is taxable.
- Own Trading – when a broker enters into transaction on his own account with an investor, who is not a member of the stock exchange, the service provided is taxable service.
- Arbitrance – in case two brokers of different exchanges transact to earn from price difference in the two markets, the member of one exchange is an investor and the service provided is subject to service tax.
- When an investor is provided with taxable service by two brokers at different exchanges, service tax is payable by both. It does not amount to double taxation.
- Brokerage amount must be indicated separately on the Bill raised on investors.
The value of taxable service shall be in accordance with section 67 of the Act, which are as under:
- In a case where the provision of service is for the consideration in money, be the gross amount charged for service provided or to be provided by him to any person in his professional capacity.
- In a case where the provision of service is for the consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration.
- In a case where the provision of service is for the consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.
- In any other case the valuation shall be as per provision contained in Service Tax (Determination of Value) Rules, 2006.