GST Exemption on Sale and Purchase of Securities

Trading in securities can have several tax implications, including GST. Businesses engaged in the sales and purchases of securities must be careful about compliance with these tax implications. This article discusses the GST application and GST exemption on the sale and purchase of securities. 

Is the Sale of Securities Taxable under GST?

Securities are tradable financial instruments representing ownership of equity or debt capital. Private businesses and governments issue securities to raise capital. Issuances of securities happen in primary markets, while people owning securities can sell them in secondary markets. 

GST is a supply-based indirect tax on goods and services. Securities, being financial assets, are neither goods nor services. So, the GST Act 2017 does not apply to the sales and purchase of securities. 

Why are Securities Excluded from GST?

The fundamental reason behind the exclusion of securities from GST is the definition of goods and services as mentioned in the Central Goods and Services Tax (CGST) Act, 2017. 

• Definition of ‘goods’ - The term ‘goods’ refers to movable properties and physical items with an actionable claim to ownership. This definition excludes money and financial assets. 
• Definition of ‘service’ - The term ‘services’ refers to anything not covered by the definitions of goods, money, and financial assets. 
• Definition of ‘supply’ - This refers to a sale, barter, transfer, licence, rental, or lease of goods or services in exchange for consideration. 

Being financial assets, securities are neither goods nor services. So, the sale and purchase of securities cannot be considered as the supply under GST. However, the act of facilitating the exchange of money or financial assets can be considered a service. 

For example, a broker facilitating sales and purchases of securities needs to levy and collect GST on the brokerage charges. The applicable GST on brokerage services for securities is 18%.    

Assume XYZ Associates is a stock market brokerage company. It facilitated a sale of equity shares worth Rs 10,00,000. The brokerage fee is 0.1%. 

• Total brokerage fee = (Rs 10,00,000*0.1%) or Rs 1000. 
• GST is applicable at 18% on the brokerage fee. 
• Total GST brokerage = (Rs 1000*18%) or Rs 180. 
• Brokerage + GST = (Rs 1000 + Rs 180) or Rs 1180

So, the total costs for the sale of securities for the seller will be (Rs 1000 + Rs 180) or Rs 1180. 

What is the Tax on the Sale and Purchase of Securities?

Securities Transaction Tax (STT) applies to the sale and purchase of securities. This is a direct tax collected at source and applicable on the purchase and sale of securities in any SEBI-recognised stock exchanges. The tax is applied as a percentage of the transaction value for any sale or purchase. 

The securities covered under STT are:

• Equity shares
• Derivatives (Futures and Options)
• Equity-oriented mutual funds
• Exchange Traded Funds (ETFs)
• Government securities of an equity nature
• Securitised debt instruments

However, STT does not apply to commodity derivatives and foreign exchange derivatives. 

Conclusion 

GST exemption on the sale and purchase of securities does not exclude the application of the tax on costs of transaction facilitation like brokerage. When buying or selling securities, it is crucial to factor in the GST costs as part of the total transaction expenses.