The Goods and Services Tax is a milestone in the history of Indian indirect tax laws. Any business registered under GST must charge GST on the sale of goods or services. It is applicable to manufacturers, traders (dealing in Goods & Services), and service providers. The most common GST related question: Do traders (Trading Securities) need to file GST? They are often confused about the applicability of GST (Goods and Services Tax) to ‘trading in securities.’ The answer is: GST is NOT applicable to the purchase/sale of Securities.
Securities have the same meaning as per Section 2 of Securities Contracts (Regulation) Act, 1956 and includes shares, scrips, stocks, bonds, debentures, debenture stock, other marketable securities, and derivatives. Let’s deep dive!
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GST for Traders on Securities
If one looks at the history of indirect taxes, activity of sale and purchase of securities has never been subjected to any service tax and value-added tax (VAT). Even the GST Act EXCLUDES Securities from the definition of Goods. Section 2(52) gives us the definition of goods as: ‘any movable property except money and securities.’ While Services mean: ‘ anything other than goods, money, and securities.’
This tells us that trading in shares and securities falls outside the ambit of the GST Act. And Securities Traders are not liable to register under GST.
GST might be called a destination-based ‘consumption’ tax whereas securities are ‘investments’. Imposing a tax on something which merely represents investment would go against the principle of GST. But there’s a click here. If you are a broker, you must be earning brokerage and commission income from Securities Trading. Now, this is a service and comes under the ambit of GST. Hence, inclusion in Aggregate Turnover is necessary to determine the applicability of GST Registration if it crosses the Turnover Threshold. The GST tax rate on Brokerage is 18%.
What’s the Threshold Limit?
If you are a business owner, it is mandatory to register under GST if the Aggregate Turnover exceeds INR 40 Lakh (INR 20 Lakh for special category states) for the sale of goods & INR 20 Lakh (INR 10 Lakh for special category states) for the sale of services.
Is Trading Turnover a Part of Aggregate Turnover?
Aggregate Turnover includes the sum of the sale of goods and services. And since the definition of goods and services excludes securities, the ‘aggregate turnover’ should NOT include ‘trading turnover’ to determine the applicability of GST Registration.
Trading Turnover is the turnover calculated for each trading segment as per the reporting requirements of the Income Tax Act.
Trading Expenses on Securities Trading
Expenses incurred on trading in securities include CGST, SGST, or IGST. This is nothing but the GST on expenses such as brokerage, transaction costs, turnover fees, etc. Traders usually incur such expenses during trading transactions. The trader can claim such expenses against the profit/loss from trading while filing the Income Tax Return on the income tax website.
How GST Works for Traders – Reporting in ITR-3
Turnover as per ITR must match with sales reported in GST Return to avoid any mismatch notice. If the trader does not have GST Registration, he/she need not report details of GSTIN in the Income Tax Return. If the trader has income from any business other than securities trading and has GST Registration, it is advisable to report the trading turnover from securities trading under Non-GST Supply in the GST Return.
Impact of GST on Securities
There are some absurd effects of GST on Securities. For example, the sale of securities to Foreign Institutional Investors (FIIs) based out of India would most likely qualify as ‘export’ (subject to receipt in convertible foreign exchange) and be zero-rated. But the domestic sale of the same securities could be subject to GST. This might lead to a scenario that incentivizes all investments in India to be routed through foreign shores. Sounds like a death knell for domestic investments, doesn’t it?
Do Traders Need to File GST? Is it applicable to income from Securities? The answer in a nutshell – no.