Sub-brokers need not pay service tax

By siliconindia   |   Wednesday, 08 July 2009, 19:37 IST
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Sub-brokers need not pay service tax
Bangalore: The confusion that loomed, after the recent remark by Comptroller and Auditor General of India (CAG) that the sub-brokers had to pay service tax is cleared. Thanks to the new budget proposal to reduce paperwork for sub-brokers excluded them from the purview of service tax. Recently, the CAG had remarked that the sub-brokers had not been paying service tax, though they were rendering services to their clients. According to the CAG, the sub-brokers of Geojith BNP Paribas were taxable under Section 65-19 of the Service Tax Rules for Business Auxiliary Services. According to Business Standard, based on CAG's remark, many sub-brokers in south India received orders from tax authorities to pay the service tax. The sub-brokers argued that it was unfair as contract notes to clients were issued by member-brokers and payments were received and made to them. In this process, the main broker deducted service tax and paid only the commission to the sub-brokers. However, to avoid the harassment by tax authorities, sub-brokers in Mumbai paid the tax directly and claimed the amount from the member-brokers. This procedure increased the administrative burden on the tax authorities as there are over 40,000 sub-brokers registered with the Securities and Exchange Board of India (Sebi). The process also meant there had to be more paperwork to pay the taxes.

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