GST, or the Goods and Services Tax, is a taxation that is not direct but indirect on the supply of goods and services in India.
Since it came into effect in 2017, GST has been an integral part of the economy. Traders need to understand this tax and its applicability to trading activities.
This article will provide details concerning GST on share trading and how to calculate GST on share trading, giving insight into rates and factors affecting price for every transaction.
Understanding GST Rates
In Share trading, there are different types of trades that come under GST such as stocks, futures as well as commodities. GST rates are applicable, and the method of calculation depends on the type of trade and traders involved.
Presently, trade applies two categories of GST rates: Central GST (CGST) and State GST (SGST). The government and the GST council determine the rates for CGST and SGST, which vary from state to state.
IGST( Integrated GST) is payable on inter-state trades, which is a combination of both CGST and SGST.
- CGST: The government taxes the supply of goods and services within a state or union territory through CGST, which stands for Central Goods and Services Tax. It is one tax that has replaced many indirect taxes formerly imposed by the central government like excise duty, service tax, and central sales tax.
- SGCT: Also known as State Goods and Services Tax, SGST is a tax imposed by the state governments on supplies within a state or union territory. It replaces earlier taxes at the state level, like value-added tax (VAT), entertainment tax, and luxury tax that had been in force prior to the implementation of GST.
- IGST: It is the GST for inter-state supplies of goods and services within India. It’s Charged by the central government, but shared between the central and state governments with a predetermined formula. The IGST helps in sustaining a smooth movement of goods and services across state boundaries, thus eliminating problems of double taxation.
What are the Different GST Rates?
The GST Council, which consists of the Finance Ministers from both Central and State Governments, fixes the GST rates.
The council frequently reviews and changes these rates on various grounds such as revenue needs, inflation, economic situation, or demand of the industry, among others.
The intention is to keep a fair tax structure while facilitating commerce and advancing the economy.
Now, if you are wondering how much GST is on share trading, GST is applicable on various charges related to share trading. Here are the key points:
- GST on Brokerage: In share trading, brokerage services are charged GST. The rate is 18% of the total cost of brokerage, including transaction charges.
This means that for every transaction, the broker’s fee and transaction charges are subject to an 18% GST. - GST on Other Charges: Stock brokers do not charge GST on recoveries like stamp duty or securities transaction tax, provided they meet the conditions of a ‘pure agent’ as per Rule 33 of the CGST Rules, 2017. Essentially, these charges are not subject to GST.
- GST on Interest/Delayed Payment Charges: Interest or delayed payment charges for late payment of brokerage amount, settlement obligations, or margin trading facility are not subject to GST.
If a trader pays late, the additional charges incurred are exempt from GST.
Dhan offers very competitive and simple pricing – zero brokerage for Equity Delivery trading and for Equity Intraday, Equity future, and Commodity Future Max Rs. For Options, Commodity Option will apply a flat fee of Rs. 20 per order executed, or 0.03% of the order value, whichever is lower.
Factors Influencing GST Charges
Section 2(52) of the GST Act defines Goods as any movable property, excluding money and securities, which are specifically excluded from this definition.
Securities are shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of a like nature in or of any incorporated company or any other body corporate.
So, that means there’s no GST levied on the sale value of your traded stocks. Nevertheless, GST is leviable at brokerage currently at 18%.
How to Calculate GST on Share Trading?
The calculation of the GST charges on trades is a simple process. The computation of the GST amount uses a percentage of the brokerage fees.
A base rate (CGST and SGST) is used to calculate this on the amount of brokerage and it is added to the total cost of a trade. To comprehend better, let’s take an example:
Let us say Mr B has sold 10,000 shares of Stock X @Rs. 10 each. In this case, the total value of trade will be Rs. 1,00,000. Let us assume that there are various costs, like STT, brokerage, etc., associated with trading which sum up to Rs. 2,000 approximately.
Hence the GST charge will apply to this Rs. 2,000 and not to the entire transaction value! Therefore total cost will be equal to 2,000*1.18 = 2,360 (18% GST rate), and the total amount receivable from the broker for the trader = Rs 97,640.
Suppose you were supposed to earn profits worth Rs. 20,000 from executing this trade (the shares being bought at a cost totaling Rs. 80,000). Then your realizable profit would have been Rs. 17,640 instead.
As a result, trading costs eat into your profitability hence one should know what he or she pays for it.
Conclusion
It’s important to understand how GST affects share trading for better decisions. Stay informed to manage your trading costs. Frequent trading can impact the total GST paid on brokerage charges.
