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

Brokerage Firm Questions Service Tax on 'Transaction Charges' as Reimbursable; Must Determine 'Pure Agent' Status Under Tax Rules. A stock brokerage firm inquires whether 'transaction charges' collected from clients are subject to service tax, arguing these charges are reimbursable and should be excluded from taxable service charges. A respondent suggests that if transaction charges are separately billed and remitted to the stock exchange, they might be considered reimbursements. However, the firm must determine if it acts as a 'pure agent' under service tax rules. If the broker is obligated to pay these charges, it cannot claim pure agent status. The firm is advised to review the nature of these charges and apply relevant service tax valuation rules.