Introduction

The Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India. It has become an integral part of the economy since its inception in 2017. When it comes to trading activities, understanding the applicability and implications of GST is essential for investors. In this article, we will delve into the details of GST charges on trades, shedding light on the rates, calculation methods, and factors influencing the amount of GST levied in every trade.

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Understanding GST on Trades

GST is charged with various types of trades, including stocks, commodities, and derivatives. The applicable GST rates and calculation methods depend on the nature of the trade and the involved parties. Currently, there are two types of GST rates applicable to trade: CGST (Central GST) and SGST (State GST). CGST and SGST rates are determined by the government and the GST Council and vary from state to state. For inter-state trades, IGST (Integrated GST) is charged, which is the combination of CGST and SGST.

• CGST, or Central Goods and Services Tax, is levied by the central government on the supply of goods and services within a single state or union territory. It is a tax that replaces several indirect taxes previously levied by the central government, such as excise duty, service tax, and central sales tax.

• SGST, or State Goods and Services Tax, is levied by the state government on the supply of goods and services within the same state or union territory. SGST replaces the state-level taxes that were applicable before GST implementation, such as value-added tax (VAT), entertainment tax, and luxury tax.

• IGST, or Integrated Goods and Services Tax, is applicable to the supply of goods and services between different states or union territories within India. It is levied and collected by the central government, but is distributed between the central and state governments based on a predetermined formula. IGST helps maintain a seamless flow of goods and services across state borders and avoids multiple taxation issues.

How are GST rates determined?

GST rates are determined by the GST Council, a constitutional body consisting of the Finance Ministers from the Central and State Governments. The council reviews and revises the rates periodically based on various factors, such as revenue requirements, inflation, economic conditions, and industry demands. The objective is to maintain a balanced tax structure while ensuring the ease of doing business and promoting economic growth. The GST Council's decisions on rates are binding on both the central and state governments, providing a uniform tax structure across the country.

What are the different GST rates?

GST is levied at different rates depending on the nature of goods or services. The rates are categorised into four key rates: 5%, 12%, 18%, and 28%. Additionally, certain goods and services are exempted or zero-rated, meaning no GST is applicable to them.

What are the factors influencing GST charges?

The GST Act specifically excludes securities from the definition of Goods. As per Section 2(52), Goods mean any movable property except money and securities. Securities include shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of a like nature in or of any incorporated company or other body corporate. Hence, GST is not charged on the sale value of your traded stocks.

However, GST is applicable to the brokerage which is currently charged @ 18%.

How do I calculate GST charges?

The calculation of GST charges on trades involves a straightforward process. The GST amount is calculated as a percentage of the brokerage fees. The applicable GST rate (CGST and SGST) is applied to the amount of brokerage and the resulting amount is added to the total cost of the trade. Let's take an example to understand it better:

Let's say, Mr A sold 10,000 shares of Stock X @Rs. 10. The total value of the trade, in this case, would be Rs.1,00,000. Let's say the cost of trading, which includes various costs like STT, brokerage, and more, is calculated to be Rs. 2,000. Therefore, the GST will be calculated on this Rs. 2,000 and not on the entire transaction value. Therefore, the total cost of the trade will be 2,000*1.18 = 2,360, and the total amount receivable by the trader from the broker will be Rs. 97,640.

If your profits were supposed to be Rs. 20,000 from the execution of this trade (given that you bought the shares at a total cost of Rs. 80,000), your actual realisable profit would be Rs. 17,640. Trading costs cut into your profitability, so you should know what you pay.

Conclusion

Understanding the GST charges on trades is vital for traders and investors in India. By comprehending the applicable rates, calculation methods, and factors influencing the charges, individuals can make informed decisions and accurately assess the impact on their trading activities. It is recommended to consult with tax professionals or refer to official government guidelines for specific and up-to-date information on GST charges and their implications on trades.

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