Levy of service tax - transaction charges

[CA AMIT DOSHI]

We are engaged in the business of “Stock Broker Services” as a member of National Stock Exchange & Bombay Stock Exchange and is registered with the department for payment of Service Tax under the category “ Stock Broker”. We are discharging the Service Tax liability on the aggregate of commission or brokerage charged by us on the sale or purchase of the securities. Whether “transaction charges” which are collected by us from the clients, could be subject to levy of service tax since according tous it is a re-imbursible amount only and excludible from service charges for the purpose of levy of service tax thereon. Pls give us valuable feedback alongwith case laws in support

[Markesh Antony]

In case you are showing the "transaction charges" separately in the bill and depositing the the amount equal to collected to the stock exchange, it may become as reimbursement of expenses. But next question arises that whether you are pure agent or not. In case the amount is to be deposited as part to obligation of the stock broker, he can not be treated as pure agent, where as the liability to pay the transaction charges on the investor, the same becomes pure agent and benefit of reimbursement of expenses would be allowed. Since I have not studied the nature of "transaction charges" you are advised to study the same and apply the provisions of pure agent concept as per service tax valuation rules. You would find the correct answer.

[CA AMIT DOSHI]

thnx

AI Summary

Pure agent reimbursement: transaction charges may be excluded from service tax when broker separately collects and passes them on. Levy of service tax on transaction charges depends on whether such charges are shown separately and passed through to the stock exchange, qualifying as reimbursement of expenses if the broker is a pure agent. If the broker bears the obligation to pay the charges, they form part of the taxable consideration; factual analysis of billing, contractual incidence, and application of the pure agent criteria under service tax valuation rules is required.