can please advise applicability of TDS on Brokerage paid on commodity & currency deravitive transactions.
As per section 194H, tds is deductible on commission or brokerage paid for service rendered or for any service in the course of buying or selling of goods or in relation to any transactions relating to any assets, valuable articles or thinks, not being securities. The expression “Securities” shall have the meanings assigned to it in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956.
Clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956 define securities as under:
(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;
Clause (ac) of section 2 of the Securities Contract (Regulation) Act, 1956 define “derivatives” as under:
(ac)] “Derivative” includes—
(A) a security derived from a debt instrument, share, loan, whether secured or Unsecured, risk instrument or contract for differences or any other form of
Security;
(B) a contract which derives its value from the prices, or index of prices, of Underlying securities;]
The above definition of derivatives is likely to cover only securities derivatives and does not likely to include commodity & currency derivatives.
Reading of all the above provisions of Income Tax Act as well as Security Contract Act suggests that section 194H exempts only securities brokerage. It does not exempt brokerage of currency derivatives / commodity derivatives.
It is quite worthy to note that futures trading in commodities and currency presented, the regulations and the regulators are as follows:
FUTURES IN COMMODITIES ======================= • The law governing it, is in Forwarded contracts (Regulation) Act, 1952.
• The regulator is the forwarded markets commision.
STOCKS/SECURITIES ================== • The law regulating it, is Securities Contracts (Regulation) Act, 1956.
• The regulator is SEBI.
CURRENCIES DEREVATIVES ======================
• The law is in RBI Act, 1934 Banking regulation.
• The regulator is RBI.
Whereas as per 194H the expression “Securities” shall have the meanings assigned to it in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956.
thus the above expression does not cover Forwarded contracts (Regulation) Act, 1952 and RBI Act, 1934 Banking regulation.
21 June 2011
Nice analysis of the provisions i must say and as per the provisions TDS is deductible in currency segment and commodities segment as it is not covered by Securities Contract Regulation act and hence not covered in the exception.
CAclubindia
