Tds on brokerage

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Shirish Shah (Querist)
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24 May 2013 If client has traded on SPOT Exchange and paid to Broker more than 5000/- as brokerage

1. whether TDS has to be deducted from Brokerage by the client ??

2. If yes than why TDS on equity segment for trading on NSE and BSE is exempted ?? If yes please share the relevant provisions/Circulars.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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24 May 2013 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 SECR Act, 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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