No service tax on late payment charges by stock investors if showed separately

12 Dec 2011 Evaluate

The stock market investors would not have to pay any service tax on any late payment charges paid by the them to their brokers, given such fines are showed separately in the account statement. The finance ministry has clarified the issue to the capital market watchdog Securities and Exchange Board of India (SEBI) which in turn has informed the stock exchange about the same.

With this regard, the SEBI has issued a circular to their member brokers that no service charges should be deducted on late-payment charged by them from their clients. The stock brokers normally charge a penalty or late-payment charges to their customers, if they do not make the required payments for their share purchases or to meet other obligations like payment of various fees. Although, there has been a doubt about the leviability of any service tax on such payments as a result of which few stock brokers have been deducting service tax and others have been not.

In a letter to various concerned authorities on this issue, the Central Board of Excise and Customs of the Ministry of Finance said that representations had been received by it 'seeking clarification regarding leviability of service tax on the additional amount that is collected towards the delay in making payment to the stock brokers by their customers (as delayed payment charges) in respect of stock brokers' services.'

The CBEC also said that it examined the practice in other similar segments and found that an amount collected for delayed payment of a telephone bill did not form a part of the value of taxable service. It also found that no service tax was being levied in some other similar segments.

'In a similar manner, delayed payment charges received by the stock brokers are not includible in taxable value as the same are not the charges for providing taxable service' and such charges were more in the nature of a penal charge, CBEC noted.

However, it said that the Finance Act provided for a service tax being charged on taxable value, which shall be the gross amount charged by the service providers. Therefore, a service tax would be charged on the entire amount, if account statement invoice or bill showed only the gross amount, without indicating the delayed payment charges separately. 'Delayed payment charges would not be includible in 'gross value charged' only if these charges are shown separately in the account statement/invoice/bill etc,' the CBEC note clarified.

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