GST on Stockbroking, The CBIC has published the FAQs on different topics and sectors. Following are the FAQs on Stock broking Sector under GST:-
Q-1. In the case of stockbroking, whether stamp duty or securities transaction tax or other Central or State taxes would be considered as a part of the value of supply as prescribed under Section 15 of the CGST Act, 2017, for levy of GST?
Ans: GST is not payable by the stockbrokers on these recoveries as long as the conditions of the pure agent as provided in Rule 33 of the CGST Rules, 2017 are met. If not, then valuation will be done as per section 15 of the CGST Act, 2017 read with Rule 27 of CGST Rules, 2017. GST on Stockbroking
Q-2 Is brokerage earned in stockbroking service liable to Goods and Services Tax?
Ans: Yes. Since the stock brokers are engaged in the business of supplying the stockbroking service, appropriate GST is payable on the same. GST on Stockbroking
Q-3 Can a person take voluntary registration under the Act?
Ans: Section 25(3) of the CGST Act, 2017 states that “a person, though not liable to be registered under section 22 or section 24 of the CGST Act, 2017 may get himself registered voluntarily, and all provisions of this Act, as are applicable t a registered person, shall apply to such person.” Therefore, any person may choose to get voluntary registration under the Act. GST on Stockbroking
Q-4 Is GST leviable on interest/ delayed payment charges charged to clients for debit for settlement obligations/ margin trading facility?
Ans: Any interest/ delayed payment charges charged for delay in payment of brokerage amount/settlement obligations/margin trading facility shall be leviable to GST. GST on Stockbroking
Q-5 What will be the “place of supply of services” in case of stockbrokers?
Ans: In case of stockbroking, the details of the address of the client are required to be updated with the Stock Exchange as part of the “Unique Client Code” details. Therefore, in case of domestic supplies of such services, address on record with the stockbrokers shall be the “location of the recipient of services” in terms of section 12(12) of the IGST Act, 2017. However, in cases where the location of the recipient is outside India, the place of supply shall be determined as per section 13(8) of the IGST Act, 2017 i.e. as an intermediary. GST on Stockbroking
Q-6 Do stockbrokers fall in the definition of “intermediary” under section 2(13) of the IGST Act, 2017?
Ans: Yes. Since stock brokers arrange the supply of securities between two or more persons, stock brokers would be covered by the definition of “intermediary”. GST on Stockbroking
Q-7 Would sub-brokers/ Authorized Persons fall in the definition of “agent” under Section 2(5) of the CGST Act, 2017? What would be the registration requirement for sub-brokers/ Authorized Persons in the context of the Goods and Services Tax Regime?
Ans: As per Stock Brokers and Sub Brokers Regulation, 1992 issued by SEBI, a “sub-broker”
means “any person, not being a member of the stock exchange, who acts on behalf of a stockbroker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stockbrokers”. It is, therefore, apparent that the sub-broker may not only be providing services to the stockbroker but may also be providing services to the clients and
receiving consideration from both. Thus, in such a scenario where the sub-broker is providing services both to the broker and the investor on behalf of the broker, he would be duly covered by the definition of ”agent” as provided in Section 2(5) of the CGST Act, and needs to compulsorily register without the threshold under Section 24(vii) of the CGST Act, 2017.
In case the sub-brokers do not provide any service to the clients on behalf of the stockbroker (for example referral commission only), then the said sub-brokers would not fall in the definition of “agent” under the CGST Act, 2017. GST on Stockbroking
Q-8 What is the “place of business” for a stockbroker?
Ans: Section 2(85) of the CGST Act, 2017 defines “Place of Business” to include:
(i) a place from where the business is ordinarily carried on and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or
(ii) a place where a taxable person maintains his books of account; or
(iii) a place where a taxable person is engaged in business through an agent, by whatever name called.
In case of operations of a stockbroker, it is required by law that all transactions would be via screen-based trading on the Stock Exchanges. Therefore the following would be the “Place of business” in case of stockbrokers:
(i) All the branches of the stockbroker where the Stock Exchange Trading terminals are located and where trade is carried out on behalf of clients;
(ii) Main office/ Head office/ Registered Office/ Branch office where back-office operations are carried out including issuing of bills/ contracts/ tax invoices/ account statements to the clients.
In case of sub-brokers’ / Authorised Person office, where the premises are neither owned by the stockbroker nor rented/ leased in favour of the stockbroker and there are no employees on the payroll of the stockbroker in such an office, then such premises shall not be considered a place of business of the stockbroker.
Q-9 Stock Brokers deal with clients who are not residents of India like Foreign Portfolio Investors, Non-Resident Indians, Persons of Indian Origin, etc. Will brokerage earned from such clients who are not resident in India qualify as “export of service” under section 2(6) of the IGST Act, 2017?
Ans: The stockbroker being an intermediary, this situation shall be covered under the provisions of section 13(8)(b) of the IGST Act, 2017 which provides that the place of supply shall be the location of the supplier of services. Thus such a supply will be treated as an intra-State supply and would be subject to Central tax and State tax / Union territory tax, as the case may be.
Q-10. What will be the effect if we have paid
(i) Integrated tax instead of Central tax and State tax / Union territory tax?
(ii) Central tax and State tax / Union territory tax instead of the Integrated tax?
Ans: Under section 19(1) of the IGST Act, 2017 “a registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed”.
Under section 19(2) of the IGST Act, 2017 “a registered person who has paid Central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of integrated tax payable”.
Therefore, in case a registered person has paid the Integrated tax instead of Central tax and State tax or Union territory tax, then he shall be granted refund of the amount paid as Integrated tax and he will have to pay Central tax and State tax or Union territory tax. Further, no interest will be payable on the Central tax and State tax or Union territory tax so paid. Further, in case a registered person has paid Central tax and State tax or Union territory tax instead of the Integrated tax, then he shall be granted refund of the amount paid as Central tax and State tax or Union territory tax and he will have to pay Integrated tax. However, no interest shall be payable on the Integrated tax amount so paid.
Q-11: In the course of stockbroking, funds are received from the clients as margin money for trade. Would the same be treated as consideration?
Ans: In the context of stockbroking, funds/securities are provided by the clients to the stockbrokers in advance of the potential orders/trades that would lead to margin/ settlement obligations. All such advances will fall in the category of deposit under the proviso to section 2(31) of the CGST Act, 2017 and thus will not be considered as payment made for such supply unless the stockbroker applies such deposit as consideration for the said supply in his books of accounts.
Q-12: Can the stockbroker continue to issue bills and contracts under the normal Stock Exchange mechanism and issue a monthly tax invoice for the purpose of Goods and Services Tax?
Ans: The stockbroker can issue bills and contracts under the normal Stock Exchange mechanism mentioning the GST amount but will have to issue a tax invoice as envisaged under Section 31(2) of the CGST Act, 2017 read with Rule 47 of the CGST Rules, 2017.
Q-13: What is considered as ‘securities’ under the Goods and Services Tax Act? Are they taxable under GST?
Ans: Section 2(101) of the CGST Act, 2017 defines “securities” to have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.
Section 2(52) of the CGST Act, 2017 defines “goods” to mean every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Thus, securities are not goods under the CGST Act, 2017. Section 2(102) of the CGST Act, 2017 defines “services” to mean anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. Thus, securities are not services under the CGST Act, 2017.
Since securities neither fall in the definition of goods nor in the definition of services, they fall in the definition of “non-taxable supply” under section 2(78) of the CGST Act, 2017.
Q-14: Whether GST will be levied on the exit-load on mutual funds?
Ans: Exit load in the form of a fee (whether or not as a fixed percentage of the investment) is liable to GST. Even if the exit load is in the form of units in the fund, it may be concluded that the consideration received in money was later converted to NAV units.
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