Budget relief for sub-brokers, not to pay service tax

After finding instances of service tax evasion by sub brokers, the Comptroller and Auditor General of India (CAG) had prompted tax authorities to issue orders to several south India-based sub-brokers to pay service tax. However, the recently announced Budget has brought cheers to the sub-brokers by excluding them from the purview of service tax and has also cleared the confusion persisting over their fate.

Recently, the CAG had observed that many sub-brokers were not paying service tax even in the case of taxability under “Business Auxiliary Services” (Section 65-19 of the Service Tax Rules).

On the other hand, sub-brokers protested over the CAG finding and contended it was unfair as contract transaction by member-brokers and payments were also received and made by brokers only. Hence, the main broker had deducted service tax and paid commission to sub-brokers accordingly, leaving sub-brokers away from the tax net.