| Q.1 |
Who is Underwriter
and what is underwriting ? |
| Ans. |
The words "Underwriter"
and "Underwriting" are defined in clauses (f)
and (g) of Rule 2 of the Securities and Exchange Board of India
(Underwriters) Rules, 1993.
According to the Securities and Exchange Board of India (Underwriters)
Rules, 1993, 'underwriter' means a person who engages in the
business of underwriting of an issue of securities of a body
corporate and 'underwriting' means an agreement with or without
conditions to subscribe to the securities of a body corporate
when the existing shareholders of such body corporate or the
public do not subscribe to the securities offered to them. |
| Q.2 |
What is the taxable
service in case of service provided by Underwriter? |
| Ans. |
Taxable service means
any service provided to a client, by an underwriter in relation
to underwriting in any manner.
Underwriting services can be provided by financial institutions,
banks, sharebrokers 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. |
| Q.3 |
What is the value
of the taxable service in case of service provided by Underwriter? |
| Ans. |
Value of taxable services
in relation to the services provided by an underwriter to a
client, is the gross amount charged by such underwriter from
the cleint for services rendered in relation to underwriting
in any manner".
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 by 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 amounts 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. |
| Q.4 |
There are many companies
who are lead Managers to issue of shares to the general public.
In many cases, these lead managers also undertake the activity
of underwriting of the issues. Would such companies also be
covered in the category of underwriters ? |
| Ans. |
An underwriter means
a person who is engaged in the business of under writing of
issue of securities of a body corporate. In case a lead manager,
also undertake the activity of underwriting of the issues then
such lead managers would be covered under the category of under
writers, for levy of Service Tax. |
