STOCK BROKER

Date of Introduction: 01.07.1994. Notification No.1/94-ST dt. 20.06.1994.

Definition:

 

“Stock Broker’ means a stock-broker who has either made an application for registration or is registered as a stock­broker in accordance with the rules and regulations made under the Securities and Exchange Board of Indian Act, 1992 (15 of 1992).”

 

(Section 65(69) of Finance Act, 1994 as amended) The service provided by the stock broker becomes liable to pay Service Tax subject to the conditions that the ­

 

(a) Stock Broker should be registered as per SEBI Act, 1972.

(b) Stock should be listed in the Stock Exchange.

(b)The Stock Exchange must be recognized Stock Exchange as per Securities Contract (Regulation) Act, 1956.

(c) The Sale/Purchase should be on behalf of an investor.

 

Taxable event and scope of service:

 

Taxable service means any service provided to an investor by a stockbroker in connection with sale or purchase of securities listed on a recognized Stock Exchange.

(Section 65(72)(a) of Finance Act, 1994 as amended)

 

“Securities” has the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

(Section 65 (61) of Finance Act, 1994 as amended)

 

Section 2 (h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) reads as follows: “Securities” includes

 

(i)      shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of a like nature in or of any incorporated company or body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(ii)     Government securities;

 

(iia) such other instruments as may be declared by the Central Government to be securities; and

 

(iii) rights or interests in securities.”

“Recognized stock exchange” has the meaning assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). (Section 65 (58) of Finance Act, 1994 as amended) Section 2 (f) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) reads as follows:

 

“Recognized stock exchange” means a stock exchange which is for the time being recognized by the Central Government under section 4.

The Central Government has recognized the following 22 Stock Exchanges:

 

                     (1) Bombay Stock Exchange

                     (2) Delhi Stock Exchange Association Ltd.

                     (3) Madhya Pradesh Stock Exchange (Indore)

                     (4) Ahmedabad Stock Exchange

                     (5) Madras Stock Exchange

                     (6) Calcutta Stock Exchange

                     (7) Uttar Pradesh Stock Exchange Association Ltd.

                     (8) Pune Stock Exchange Ltd.

                     (9) Bangalore Stock Exchange Ltd.

                     (10) Ludhiana Stock Exchange Association Ltd.

                     (11) Hyderabad Stock Exchange Ltd.

                     (12) Gauhati Stock Exchange Ltd.

                     (13) Cochin Stock Exchange Ltd.

                     (14) Mangalore Stock Exchange Ltd.

                     (15) Magadh Stock Exchange Association

                     (16) Bhubaneshwar Stock Exchange

                     (17) Saurashtra Kutch Stock Exchange

                     (18) Jaipur Stock Exchange

                     (19) Vadodara Stock Exchange

                     (20) Coimbatore Stock Exchange

                     (21) Over The Counter Exchange of India

                     (22) National Stock Exchange.

 

Own trading: In case, a broker enters into a transaction on his own account, with an investor who is a non–member on the stock exchange, the service provided will be taxable service, and subject to Service Tax.

 

Arbitrage: In the case of arbitrage transaction i.e. the transaction between two brokers of different stock exchanges, the service is provided by a broker i.e. the member of a stock exchange even though the investor may be a member of another stock exchange, there being an investor involved in the transaction, the service so provided to the investor will be a taxable service and subject to Service Tax.

(Ministry’s F.No.148/1/94 CX-4 (Pt. I) dt. 31.12.1996)

 

National Stock Exchange using Very Small Aperture Terminals (VSAT) installed at trading members office whereas the members of local stock exchange is required to carry on business compulsory within the jurisdiction of the said Stock Exchange where he is registered. Board is of the view that Trading members/Stockbrokers of National Stock Exchange will have to register their premises with the Central Excise Commissionerate having the jurisdiction over the place where trading membership is granted and infrastructural facilities are provided for installing the Very Small Aperture Terminals and operating the business.

(Ministry’s F.No.148/5/96-CX.4 dt.16.09.1996)

 

A Broker who is registered with Kanpur Stock Exchange has to apply for registration with Commissionerate of Central Excise, Kanpur. All the officers of this broker irrespective of location will be registered with Commissionerate of Central Excise, Kanpur.

(Ministry’s F.No.148/1/94-CX.4 dt.06.09.1994)

 

For the issue raised as to whether service tax can be collected for a transaction in Sikkim Stock Exchange, which has not yet been recognized, it is clarified that service tax is required to be collected from Stockbrokers. Stockbroker has been defined in the Act itself, i.e., a stockbroker who has either made an application for registration or is registered as a stockbroker in accordance with the rules and regulations made under the Securities and Exchange Board of Indian Act, 1992 (15 of 1992). Hence, all stockbrokers are covered by service tax scheme.

(Ministry’s F.No.148/1/94-CX.4 dt.06.09.1994)

 

For the reasons of transparency that service tax charged/collected is shown separately in the Contract Note/Bills. (Ministry’s F.No.148/1/94-CX.4 dt.06.09.1994)

 

Charging of service tax from an investor who is provided with taxable service by two brokers of different stock exchanges does not amount to double taxation.

 

Value of Taxable Service:

 

Value of the taxable service provided by Stockbroker, is the aggregate of the commission or brokerage charged by the stockbroker on the sale or purchase of securities from the investors and includes the commission or brokerage paid by the broker to any sub-brokers.

(Section 67 of Finance Act, 1994 as amended)

 

“Sub-broker” means a sub-broker who has either made an application for registration or is registered as a sub broker in accordance with the rules and regulations made under the Securities and Exchange Board of India Act, 1992.

(Section 65 (70) of Finance Act, 1994 as amended)

 

Exemption and Exclusion:

 

1.      Jobbing -The transaction on principal to principal basis between brokers, no investor is involved and as such no taxable service is provided and therefore, no Service Tax is chargeable.

(Ministry’s F.No.148/1/94 CX-4 (Pt.I) dt.31.12.1996)

 

2. Taxable service means any service provided to an investor, by a stockbroker in connection with the sale or purchase of securities listed on a recognized stock exchange.  The commission charged by stockbroker as underwriters is for floating securities. Hence, it is not covered.

(Ministry’s F.No.148/1/94 CX-4 dt.06.09.1994)

 

3. Sub-brokers are not covered by service tax. (Ministry’s F.No.148/1/94-CX.4 dt.06.09.1994)

4.       The following transaction undertaken by the Stockbrokers do not attract the levy of Service Tax.

                     a. Private placement charges

                     b. Public issue consultancy fee

                     c. Brokerage or primary market operations

 

Case laws:

 

U.S.Chaudhary V/s. CCE, Kanpur [1999 (110) ELT 925 (Tribunal)

 

No service tax is payable when the brokers of the same stock-exchange or brokers of one stock exchange with another stock-exchange carry on business in purchase or sale of securities since in either of the situation no investor is involved.

 

 

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