Clearing members play a critical role in India's securities markets by facilitating the clearing and settlement of trades executed on stock exchanges. The fees charged by clearing members, custodians, and exchanges for these services attract GST at 18%, and understanding the tax treatment is essential for brokers, clearing members, and their clients.
This article explains the GST treatment of custody, clearing, and settlement fees.
Services Subject to GST
The following services attract GST at 18% :
- Custody Fees: Charged by custodians for holding and safeguarding securities on behalf of institutional investors.
- Clearing Fees: Charged by clearing corporations for processing and settling trades.
- Settlement Fees: Charged for the settlement of trades, including delivery and payment obligations.
- SEBI Turnover Fees: Levied by SEBI on the turnover of stock exchanges and passed on to clearing members and brokers.
- Exchange Transaction Charges: Charged by stock exchanges for executing trades.
SEBI Turnover Fees and GST
SEBI turnover fees are levied by SEBI on stock exchanges and are passed on to brokers and clearing members. These fees attract GST at 18% with effect from July 18, 2022. Clearing members must levy GST on the fees payable to SEBI from their clients.
ITC for Clearing Members and Brokers
Clearing members and brokers can claim ITC on GST paid for custody, clearing, and settlement services, provided:
- The services are used for business purposes.
- The credit is not blocked under Section 17(5).
- The broker is not making exempt supplies.
Compliance for Clearing Members
- Register for GST if turnover exceeds the threshold.
- Charge 18% GST on custody, clearing, and settlement fees.
- Issue GST-compliant invoices.
- File GSTR-1 and GSTR-3B monthly.
- Reconcile fees with GST returns.
- Maintain proper records.
Common Issues
- Discrepancies in GST application: Stock brokers have faced losses due to differences in the application of GST law on penalties and other charges collected by exchanges.
- ITC eligibility: Determining whether clearing and settlement fees qualify for ITC requires careful analysis.
- Documentation: Proper documentation is essential to substantiate ITC claims.
Conclusion
Custody, clearing, and settlement fees attract GST at 18%. Clearing members and brokers must ensure proper invoicing and ITC claims. Non-compliance can lead to penalties and blocked credits.
At Anuj Desai & Associates, we provide expert advisory services on GST for clearing members, custodians, and stock brokers. Our team can help you navigate the complexities of GST on clearing and settlement fees.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.