The Goods and Services Tax (GST) has significantly reshaped the tax landscape in various sectors, including the share market. In India, GST is a comprehensive indirect tax levied on the supply of goods and services, replacing multiple cascading taxes.
In respect of the share market, GST primarily impacts transaction fees, brokerage charges, and other services related to trading. While shares and securities themselves are categorized as financial instruments and exempt from GST, ancillary services, such as brokerage, depository charges, and professional services, attract GST at applicable rates.
Understanding the nuances of GST in share market transactions is crucial for traders, investors, and financial professionals to manage costs effectively and ensure compliance with regulatory requirements.
The 18% GST is applicable on stock trading on various charges, including Brokerage, DP charges, Exchange Transaction charges, IPFT, SEBI Turnover charges, Delayed transaction charges, DDPI charges, Auto Square-Off charges, and any other applicable charges.
How to calculate GST on stock trading in India?
The GST amount calculator uses a standardised method to calculate GST. There are 2 aspects of this calculator- adding GST and removing GST from the total price of an item.
For adding GST, the following formula is used.
GST amount = (Price x GST%)
Net price = Cost of the product + GST amount
For example, if a product or service costs Rs. 100 and the GST levied on that is 18%, the GST amount will be 100 x 18% = Rs. 18. The net amount you’d have to pay would be Rs. 118.
For removing GST from the net price of a product, the following formula is used:
GST= Original cost – [Original cost x {100/(100+GST%)}]
Net price = Original cost – GST
For example, if the cost of a product after GST of 18% is Rs. 118, its original cost is 118 – [100/(100 + 18%)}], which equates to Rs. 100.
GST on F&O Trading
Futures and options are the major types of stock derivatives trading in a share market. These are contracts signed by two parties for trading a stock asset at a predetermined price on a later date. Such contracts try to hedge market risks involved in stock market trading by locking in the price beforehand.
Future and options in the share market are contracts which derive their price from an underlying asset (known as underlying), such as shares, stock market indices, commodities, ETFs, and more. Futures and options basics provide individuals to reduce future risk with their investment through pre-determined prices. However, since a direction of price movements cannot be predicted, it can cause substantial profits or losses if a market prediction is inaccurate. Typically, individuals well versed with the operations of a stock market primarily participate in such trades.
As per the Income Tax Act, F&O Trading is considered as Business Income. But, if it is considered as Business, then Will GST Registration also be required?
As per the CGST Act, 2017, any transactions could be covered under GST when you are supplying either Goods or Service. But, as per the CGST Act, 2017, Securities (including derivatives) are neither Goods nor Service. It means, Securities are not covered under GST at all.
Therefore, even if your turnover is crossing Rs. 20 Lakhs threshold, still you NEED NOT to take
GST Registration.
However, if your F&O turnover is going beyond Rs. 10 Crores, then you have to get your accounts Audited under the Income Tax Act..
[Future and Options, F&O Trading, Share Trading, Share Market, Derivatives]
How does the GST benefit the Trading Community?
Under GST, a trader would be entitled to avail input tax credit paid on his domestic procurements of goods and services unlike the present indirect tax regime.
However, a significant portion of indirect taxes namely Central Excise and Service Tax form part of the cost component for a trader. It is not the case under GST. The trader will be able to take credit for all taxes paid by him.
GST on share trading brokerage
GST at 18% is applicable on the taxable value of supply provided by a commission agent or broker, including the sale/purchase of advertising space/time.
Will all traders necessarily have to register under GST?
A trader dealing only in exempted goods or where his turnover is below Rs. 20 lakh in the financial tear (but not engaged in inter-state supplies) is not required to register under GST.
Are monthly returns required to be filled by a trader not opting to pay tax under the composition scheme?
Traders not opting to pay tax under composition scheme need to file returns on a monthly basis. Form GSTR-1 is to be filed for outward supplies made by the trader (made for the month for which return is being filed) by the 10th. of the next month. Other parts of the return Form GSTR-2 and Form GSTR-3 are auto populated and needs to be verified and submitted by the 15th. and 20th. of the next month respectively.
What is the basic information that needs to be furnished in Form GSTR-1?
The details to be entered in the return of outward supplies in Form GSTR-1, made by the trader depend upon the nature of supplies made. The provisions are as follows:-
- Intra-State supplies to consumers (B2C supplies)- tax-rate wise summery;
- Inter-State supplies to consumers (B2C supplies) of value up to Rs. 2.5 lakh – State-wise and tax-rate wise summery;
- Inter-State supplies to consumers (B2C supplies) of value above Rs. 2.5 lakh – specifies invoice-wise details;
- Supplies to resellers (B2B) – specified invoice-wise details.
Under GST will traders be required to declare their IEC at the time of imports and exports?
For the time being, both GSTIN and IEC have to be declared. But over a period of time, traders need to declare only their GSTIN instead of IEC at the time of imports and exports.
Can traders get the credit of IGST paid at the time of imports for discharging their domestic liabilities under GST? If yes, how?
Yes. Under GST, traders will be on par with manufacturers. IGST paid at the time of import will be available as credit which can be used for payment of taxes on further supplies. GSTIN would be used for the purpose of credit flow of IGST on import of goods and refund of IGST paid in case of exports.
