Introduction
The stock broking services play a pivotal role in facilitating investments and trading activities. As per the Securities and Exchange Board of India (SEBI), retail and institutional investors are not allowed to trade shares directly at the stock exchanges. That is why seek stockbroking services from a registered stockbroker, an authorised person, or an individual agent.
As an investor, you can place buy or sell orders on the stock exchanges through these stockbrokers or agents. In lieu of the services they provide, stockbrokers and agents levy specific brokerage charges. It’s crucial to choose the right stockbroker that can offer the lowest brokerage charges.
Another crucial thing to consider while availing of stockbroking services is the Goods and Services Tax (GST) applicable to them. The GST Council of India has recently decided to bring stockbroking and associated services under the ambit of the GST. Continue reading to delve into the intricacies of GST on stock broking services in India, exploring its implications and nuances.
Understanding GST on stockbroking services
The Government of India introduced GST in July 2017 to streamline the country's taxation system. It replaced multiple indirect taxes, such as service tax, excise duty, Value Added Tax (VAT), etc., with a unified tax structure. Under GST, goods and services are taxed at various rates depending on their classification. Stock broking services fall under the purview of services and are hence subject to GST.
Stock broking services attract GST at the rate applicable to services, which is currently categorised into different slabs – 5%, 12%, 18%, and 28%. However, the specific rate applicable to stock broking services is 18%. It means that stock broking services in India are subject to an 18% GST unless specified otherwise by the government.
For example, suppose a stockbroker is charging a 1% brokerage fee of the total transaction amount. In such a case, if you buy or sell shares worth Rs. 1 lakh, you will incur a brokerage fee of Rs. (1% of 1 lakh), i.e., Rs. 1,000. The GST on this fee would be Rs. (18% of 1,000), i.e., Rs. 180. So, the total brokerage fee that you would have to pay will be Rs. (1,000 + 180), i.e., Rs. 1,180.
GST compliance for authorised persons, agents, and stockbrokers
Under the 1992 regulation of the SEBI, stockbrokers, agents, and authorised persons can provide stockbroking services in India. They can place buy and sell orders on the stock exchanges on behalf of their clients. A stockbroker refers to an entity that acts as an intermediary between an investor and the stock exchanges.
Authorised persons, on the other hand, are not directly affiliated with the stock exchanges. Rather, they operate within the banner of a stockbroking firm, thereby being designated as agents according to Section 2(5) of the CGST Act. These agents can also facilitate the buying and selling of securities on the stock exchanges.
As per section 24 (VII) of the CGST Act, all agents, stockbrokers, and authorised persons must complete their GST registration by visiting the GST portal. They provide stockbroking services and receive brokerage fees calculated as a percentage of the total trade volume. According to GST regulations, tax is levied on the brokerage income they earn.
In case of payment delay, stockbrokers and agents can levy a late payment penalty on their clients. The late payment penalty will also attract a GST at the 18% rate. The GST is also imposed on the intra-state supply of stocks when clients are non-resident Indians (NRIs), foreign portfolio investors (FPIs), or individuals of foreign origin. The brokerage earned by authorized individuals serving clients residing outside India is subject to both Central and State or Union Territory taxes.
Input Tax Credit (ITC)
The concept of Input Tax Credit (ITC) empowers businesses to claim credit for the tax paid on inputs used in the supply of goods or services. It means that stockbrokers, agents, and authorised persons can avail of the ITC facility to claim a refund of the GST paid on office rent, utilities, and other services, provided they were used for business purposes.
To conclude
GST has undoubtedly transformed India's taxation landscape and its impact on stock broking services is critical. Understanding the implications of GST on stock broking is crucial for both market participants and investors.
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