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Tax relief likely for brokers
April, 28th 2007

Stock exchange members, who have been on the tenterhooks for the past one year due to the possibility of service tax being levied on transaction charges, may be in for some good news.

The finance ministry is veering around to the view that transaction and certain other charges collected by stock exchanges would not attract service tax.

Stock exchanges collect a transaction charge, securities transaction tax (STT) and stamp duty from its members. The transaction charge is collected from a member as a percentage of his business turnover. This is in addition to the annual membership fee that the exchange charges from its members.

STT and stamp duty (which is not levied on demat shares) are paid by the client but collected by the government from stockbrokers for administrative convenience. These charges are essentially passed on to clients by the brokers.

Brokers had opposed the idea of levying a service tax on the transaction charge, STT and stamp duty. They argued that these are costs and there is no service rendered to clients. There is a separate service tax on the brokerage fee that a client pays to a broker.

A local court in Indore has ruled against the levy of service tax on these charges. The finance ministry, which had asked the industry to give its financial data, has carried out a detailed analysis. A clarification in this regard is expected to be issued soon by the Central Board of Excise and Customs.

This has been a long-pending demand. These charges are merely actual costs that members recover from their clients. So there is no question of service tax being levied on them. I hope the issue is clarified soon to clear the air, Association of National Stock Exchange Members of India (ANMI) president Nirmal K Agarwal said.

Field formations in various parts of the country had asked stock exchange members to pay service tax on these charges. The demand was made on account of data transfer services being brought into the tax net since 2001.

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