Service tax deduction on Brokerage

This query is : Resolved

Kunal Doshi (Querist)
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26 December 2009 Dear Sir,
I am an Investment Consultant for Mutual Funds.
I get Brokerage from Mutual Fund companies (AMC)for distributing their Products, now my concern is AMCs deduct service tax of 10.30% on Gross Brokerage Earned by me and pay the balance amount, although they are not the service providers for me.
2.)Can i claim it back like TDS?

Would appreciate if you could bring some clarity on the same.

Sunil

Sunil (Expert)
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26 December 2009 Brokerage on Mutual Funds is one service where the responsibility of paying the tax is on the recipient of service rather than the service provider. As a service provider, if you are registered for business auxiliary services as commission agent, this turnover is excluded from your turnover for service tax as well as threshold limit for turnover of taxable services for whih you are responsible.

The recipient of service has 2 options:-
1) Pay the 10.3% tax on whatever amount he pays to you.
2) Deem your bill to be inclusive of service tax and deduct the service tax portion and deposit service tax. In your case it seems that amount paid to you plus service tax @ 10.3% ON AMOUNT PAID TO YOU = your original bill amount.

You will not get refund anywhere. Just ensure that calculation is exactly as per number '2' above.

Murtaza I Bhagat

Murtaza I Bhagat (Expert)
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27 December 2009 agree and useful explanation

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Kunal Doshi

Kunal Doshi (Querist)
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27 December 2009 Dear Sunil,
It was wonderful explanation, Thank you!
Further to that this (FY 09-10) will be my First Year in the Business,
1)Do i need to get Professional tax no. or Service Tax No.?
2)Can i claim Brokerage paid by me to my sub brokeres as an Expense?
3)If so, do i need to deduct TDS, or Service Tax from the same at my end?
Thanks Beforehand.

Sunil

Sunil (Expert)
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27 December 2009 If you are doing your business in the states where professional tax is applicable you have to take an enrollment and pay annually. You approach your Professional Tax Officer and inform him what business you are doing and he will enroll you in the appropriate entry. Amount payable for this business may be based on your annual income and you have to pay only once based on the entry in which you have to pay the highest professional tax if you are doing more than one type of business. The ceiling is Rs.2500 per year. In Maharashtra this department is in the Sales Tax Office and they have a scheme where if you pay for 4 years in lump sum they give the 5th year free and you are immune to increase in rates during the interim for all the 5 years. In Gujarat State the Government has committed the revenue from Professional tax to Municipalities and local bodies. They collect and use the funds.

If this is the only business you are doing, it is not included in the taxable value of your services and you do not have to register with service tax. If you are providing any other taxable services you have to register when your aggregate receipts cross Rs.9.00 lakhs in the financial year for those services only and pay when your aggregate receipts of services taxable in your hands crosses 10 lakhs.

You can claim sub brokerage as expense. However, you should maintain books of accounts.

If your gross turnover or receipts exceed 40 lakhs per annum then you have to deduct TDS. For service tax only the principal who is doing the mutual fund business is liable to deduct service tax as recipient. As far as you are concerned you are not doing the mutual fund business and your sub broker is providing you business auxiliary services as a broker.

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