Interest On Margin Funding By Stock Brokers Will Be Subject To 18% GST

As per the leading business daily report, small brokers earning interest income on money lent to clients for making stock market bets will now have GST implications as per the clarifications by the Central Bureau of Indirect Taxes and Customs (CBIC). The authority further stated that small brokerage houses that do not own any NBFC company will have to shell out 18% GST on interest accrued on margin funding as well as delayed settlement.

It is to be noted that earlier GST implications arose only in case of interest earned on belated payments but not in case of interest earned by way of margin funding. "Any interest, delayed payment charges charged for delay in payment of brokerage amount, settlement obligations, margin trading facility shall be leviable to GST", said the CBIC. Consequently the cost of transaction for clients will also see an increase.

The recent circular on frequently asked questions or FAQs by the indirect tax authority made such clarifications.

According to a report, nearly 60% of the 7,844 registered stock brokers (as per the SEBI website) lack an NBFC association and fund clients from their own books which earns them an interest rate to the tune of 14-21% on the lent money. Notably in cases where the clients' capital market transactions are financed by the brokerage house, investor has to pay an upfront margin amount.

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