If you are trying to invest in the equity market through an authorised person, he will tell you that he is required to pay GST on his earning. Like any business, authorised persons also come under the GST rules and need to pay taxes as per the slabs. The new service tax regime has brought the authorised person under GST.
Authorised persons are not the direct members of the stock exchange. Instead, they work under the banner of a broking house, which qualifies them as agents under Section 2(5) of the CGST Act.
Who is an agent under the GST definition?
Under the authorised person regulation 1992 issued by SEBI, an authorised person (Formerly known as a Sub Broker) is defined as below,
Any person/agency, who is not a direct member of the stock exchange, who acts on behalf of a stockbroker, assisting in buying, selling, or dealing in securities, is identified as an agent. An agent provides services to both stockbroker and investor.
An agent needs to complete the due diligence with the stockbroker and register with SEBI to extend services. Any individual qualifying under the above definition is regarded as ‘agent’ and falls under Section 2(5) of the CGST Act and needs to register without a threshold under Section 24(vii) of the CGST Act, 2017.
Any person acting as an intermediary between the clients and a broking house, therefore, needs to complete GST registration and fulfil all compliances.
Whenever the authorised person receives a brokerage for rendering stockbroking services to clients, he needs to pay GST on it.
GST compliances and authorised persons
Agents, like any other business, need to pay GST as applicable. They are providers of stockbroking services and receive brokerage as a percentage of the total trade volume. Under GST rules, tax is applied to the brokerage earned. However, the agent is not required to pay any GST on any amount recovered for delays if they meet pure agent status.
If the client delays payment, the authorised person can charge him some late fees as a settlement obligation on it. Apart from that, delayed payment also attracts interest from a margin trading facility. GST does not apply to a margin amount as it is considered as loan advances.
Tax is also applied to the intra-state supply of stocks when the clients are NRIs, foreign portfolio investors, or persons of foreign origin. Central and State or Union Territory taxes apply to the brokerage earned by the authorised person for serving clients residing outside India.
But if the authorised person has already paid the integrated tax, then he is eligible to receive a return if central and state-level charges are also levied on him. This all may sound very complicated, but the simple rule is, one amount is taxed only once. Double taxation does not apply to agent brokerage.
So, what happens when the authorised person receives margin money from the client? GST does not apply to loan advances. Suppose the client pays funds or securities to the authorised person in advances to carry out a transaction; it qualifies under 2(31) of the Central GST Act 2017. It will not attract GST for authorised person unless he transfers those to his supply book, then it will be regarded as payment for such supply.
GST on authorised person in a nutshell
All GST compliances to authorised persons can be summarised in the following points.
– GST registration is now mandatory for all individuals working as authorised persons
– The Rs 20 lac turnover exemption criteria under provision 22 get nullified by sec 24
– Authorised persons need to raise an invoice to their broker for the GST amount at the end of every month
– If the authorised person registers for GST, he needs to pay the tax by 5thof every month
– Securities do not qualify as goods or services and hence, are non-taxable as per sec 2(78) of the CGST Act
– GST applies to the exit load paid by the client to the broker
Regardless of whether the authorised person registers under GST, the tax will still apply to the broker. Hence, it is advisable to get GST registration done to avoid any friction with the authority and for carrying out business smoothly.