194h

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TRIPATI (Querist)
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19 July 2013 Hello Experts

Is commission paid to broker for trading in futures and option, currency and commodities, require to pay after deduction of TDS u/s 194H

Thanks in advance

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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19 July 2013 Commission or Brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (except professional services) or for any services in the course of buying or selling or in relation to any transaction relating to any asset; valuable article or thing (except securities) As TDS on Commission is not liable to be deducted in relation to transactions related to securities, the provisions of Section 194H are not attracted on:-
1. Brokerage or Commission paid to underwriters
2. Brokerage and sub-brokerage on public issue of securities
3. Brokerage on stock exchange transactions of securities

TRIPATI

TRIPATI (Querist)
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19 July 2013 Hello Sir

Thanks for your prompt reply but all the three above i.e F&O, currency and commodities
are covered under seurities or not?. If yes so provide me the link where defination of securities is given.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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19 July 2013 Sorry i misread as Brokerage on Shares.

One offshoot issue arises about tax deduction at source from brokerage paid on the transactions of commodity derivatives. As per Section 194H of the Income Tax Act, the “commission or brokerage does not include brokerage on securities as defined under clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (SECRA).

Clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, defines “securities” as follows :
‘(h) “securities” include—
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
(ia) derivative;
(ib) units or any other investments issued by any collective investment scheme to the investors in such schemes;
(ii) Government securities;
(iia) such other instruments as may be declared by the Central Government to be securities; and
(iii) rights or interest in securities;’

As per the above definition “securities
includes “derivative”. However the moot question is whether derivative as referred to in section 2(h) of SCRA 1956, cover commodity derivative or only speaks about equity derivative as the Act itself is for regulations of Security Market and not for regulating commodity market as there is a separate body established for the same which is Forward Market Commission. Hence the question still needs to be answered is, whether brokerage paid on commodity derivative transactions is covered under the definition of security as defined under clause (h) of Section 2 of SCRA, 1956.

Since there is lack of clarity it is advisable to deduct TDS on commodities brokerage since these are different from equity derivatives.

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