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Status of Liability of service tax for stock broker - Service Tax

#1 Issue Id: - 197
Dated: 1-6-2006
By:- sunil mehta
Status of Liability of service tax for stock broker

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Dear Sir, Now w.e.f.10/9/04.defn. of stock broker includes subbroker.consequentely,subbrokerage recd.from main stock broker is taxable.But from f.y.2004-05 SEBI introduced "direct billing system",wherby main broker raises bill to a customer.Previously Main broker raises bill on subbroker and subbroker raised on client.Now,payments are made by clients directly in favour of main broker.Main broker gives some part of his earnings to subbroker at the month end. Query:1)what is the status quo liability of subbroker under in mind that there is direct billing system from main to subbroker as per sebi rules) 2)suppose the main broker has paid the liability on portion of "subbrokerage share" at his end,whether such portion of subbrokerage income will be included in calculating 4 lacs turnoverof subbroker? Can it be argued that with introduction of "direct billing system" subbroker does not come under purview of taxable services,therefore such income should be kept out of t/o limit of 4 lacs ? Note:The above query stands on provisions existing prior to 1/4/06. s.mehta

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#2 Dated: 2-6-2006
By:- Surender Gupta
In this query the main issue is liability of service upon sub broker. Sub borker is getting commission from the man broker and liable to service tax accordingly. For the purpose of calculating limit of Rs. 4 lakhs, both are independent. What ever commission is being received by the main broker from the client is total turnover. The commission payable to sub borker is not deductible at all. However, the main broker can avail Cenvat Credit against service tax paid by the sub broker.

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