UNDER WRITING SERVICE

Date of Introduction: 16/10/1998 vide Notification No.53/98-ST dt.07.10.1998.

Definition:

“Underwriter” has the meaning assigned to it in clause (f) of rule 2 of the Security and Exchange Board of India (Underwriters) rules, 1993.

(Section 65(79) of Finance Act.1994 as amended)

As per rule 2 (f) of Securities Exchange Board of India (Underwriters) Rules, 1993, the underwriter means a person who engages in the business of underwriting of an issue of securities of a body corporate.

“Underwriting” has the meaning assigned to it in clause (g) of rule 2 of the Security and Exchange Board of India (Underwriters) rules, 1993. (Section 65(80) of Finance Act.1994 as amended)

As per clause (g) of Section 2 of Securities Exchange Board of India (Underwriters) Rules, 1993, underwriting means the agreement with or without condition to subscribe to the securities of a body corporate when the existing shareholders of body corporate or the public do not subscribe to the securities offered to them.

Taxable events and scope of service:

Taxable service means any service provided to a client, by an underwriter in relation to underwriting, in any manner. (Section 65(72)(z) of Finance Act.1994 as amended)

Underwriting services can be provided by financial institutions, banks, share brokers who are member of stock exchange and investment / companies / trusts with adequate financial capacity, appropriate standing and experience. However, as per Rule 3 of the Securities and Exchange Board of Indian (Underwriter) Rules, 1993 no person can act as underwriter unless he holds a certificate granted by the SEBI under the Securities and Exchange Board of India (Underwriters) Regulations, 1993, and underwriter is required to enter into a valid agreement with the body corporate on whose behalf he is acting as an underwriter and the said agreement amongst other things may define the allocation of duties and responsibilities between him and such body corporate.

The companies who are lead Manager and undertake the activity of underwriting of the issues are covered by Service Tax Act and they are require to pay Service Tax.

(Ministry’s F.No.B-11/3/98-TRU dt.07.10.1998)

Value of Taxable Service:

Value of taxable service in relation to the service provided by an underwriter to a client, shall be the gross amount charged by such underwriter from the client for services rendered in relation to underwriting in any manner”.

(Section 67 of Finance Act, 1994 as amended)

As per regulation 14 of the SEBI (Underwriters) Regulation, 1993 the agreement between the Underwriter and the body corporate shall also provide for the amount of commission or brokerage payable to the underwriter. Service Tax is required to be paid by the underwriter at the rate of 5% on such commission or brokerage paid to him for the services of underwriting rendered by him. The underwriting commission varies depending upon the category of underwriter whether a financial institution or otherwise and also on the amount/s devolving on the public and those devolving on the underwriters. However the maximum underwriting commission applicable is notified by the Banking Department of the Ministry of Finance, though, lower rates of underwriting commission can also be negotiated between the underwriter and the client.

(Ministry’s F.No.B-11/3/98-TRU dt.07.10.1998)

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