GST on Stock Broking Services
GST on Stock Broking Services
Stock broking is a service which gives retail and institutional investors the opportunity to buy and sell shares. Stock broker is a person or a firm that offers a stockbroking service. Stock exchanges imposes strict rules and regulations on who can trade shares directly on their books and that is the reason why most of the individuals / companies hoping to deal in shares will do the same via stock brokers.
Further, a ‘Sub-Broker’ is any person who is not a Trading Member of a Stock Exchange but who acts on behalf of a Trading Member as an agent or otherwise for assisting investors in dealing in securities through such Trading Members. In this article, we look at the GST implications on stock broking service including stock broker and sub-broker.
Place of Supply
Provisions of place of supply of service in case of stock broking services are contained in section 12 (12) of IGST Act and the same is reproduced hereunder:
“The place of supply of banking and other financial services, including stock broking services to any person shall be location of the recipient of services on the records of the supplier of service. Provided that if the location of recipient of service is not on the records of the supplier, the place of supply shall be the location of the supplier of services.”
On the basis of above provisions of section 12 (12), it can be concluded that, the place of supply of service in case of stock broking service would be classified in to following two categories:
- When records of supplier of service is available – In such case, place of supply of service would be location of the recipient of service
- When records of supplier of service is not available – In such case, place of supply of service would be location of the supplier of service.
Place of Business
Section 2 (85) of the CGST Act provides that the term ‘place of business’ includes:
- A place 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
- A place where a taxable person maintains his books of account; or
- A place where a taxable person is engaged in business through an agent, by whatever name called.
In case of operations of stock broker, the place of business would be following:
- All the branches of the stock broker where the stock exchange trading terminals are located and where trade is carried out on behalf of the clients;
- 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.
Applicability of GST
There are various types of services and supply provided by a broker as under:
Brokerage Earned in Stock Broking
Stock brokers are engaged in the business of supplying the stock broking service and hence GST is payable on the brokerage earned by providing stock broking service.
Interest or Delayed Payment Charges
Also, GST would be application on any interest / delayed payment charges charged for delay in payment of brokerage amount / settlement obligations / margin trading facility.
GST for Sub-Brokers
Sub-brokers, as defined under Stock Brokers and Sub Brokers Regulation, 1992, means any person, not being a member of stock exchange, who acts on behalf of a stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock brokers.
As per section 2 (5) of CGST Act, 2017, the term “agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another. Sub-broker would apparently be providing services to the stock broker as well as to the clients / investor and receiving consideration from both. Thus, in such a case, where the sub broker is providing services both to the broker and the investor on behalf of the broker, the sub broker would be duly covered within the definition of ‘agent’ as provided in Section 2(5) of the CGST Act, and needs to compulsorily register themselves under GST without the threshold exemption under Section 24(vii) of the CGST Act, 2017. However, if the sub-brokers do not provide any service to the clients / investor on behalf of stock broker (for example referral commission only), then the said sub-brokers would not fall in the definition of “agent” under the CGST Act, 2017 and provisions of GST would be made applicable accordingly.
Treatment of Securities
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 from the above definition it can be concluded that the 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 and provisions of GST would be made applicable accordingly.