Share Brokers explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
For share brokers and sub-brokers, only the brokerage accounted for in the books counts towards the section 44AB limit, because the property in the securities never passes to the broker. Trades on the broker's own account are the exception — there the sale value counts too.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. From the first audit under the Income-tax Act, 2025 the obligation is in section 63 and the report is Form No. 26 under rule 47 of the Income-tax Rules, 2026.
Why the client turnover is not the broker's turnover
Paragraph 5.10 explains the mechanics. On purchasing securities on behalf of their customers, share brokers do not get them transferred in their names but deliver them to the customers, who get them transferred into their own names. The same is true in the case of sales. The broker holds the delivery merely on behalf of his customer.
The legal consequence follows: the property in goods does not get transferred to the share broker. Applying the same property-and-risk reasoning the Guidance Note uses for commission agents, the client's contract value never becomes the broker's sale.
Only brokerage which is being accounted for in the books of account of share brokers should be taken into account for considering the limits for the purpose of section 44AB. Not contract-note value, not exchange turnover, not the client-level buy and sell aggregate that the exchange reports.
The exception — own account trades
The Guidance Note then carves out the broker's proprietary book: in case of transactions entered into by a share broker on his personal account, the sale value should also be taken into account for considering the limit for the purpose of section 44AB.
So a broker's section 44AB test runs on two streams:
| Stream | What enters the section 44AB test |
|---|---|
| Client business — orders executed for customers | Brokerage only, as accounted for in the books |
| Own account (proprietary) business | The sale value, measured under the paragraph 5.11 rules for delivery, speculative and derivative transactions |
Sub-brokers
Paragraph 5.10 closes with a single sentence that removes a common argument: the case of a sub-broker is not different from that of a share broker. A sub-broker's section 44AB turnover is likewise the commission or share of brokerage credited in the books, plus any own-account sale value.
Where the own-account measurement comes from
Where a broker deals on his own account, paragraph 5.11 supplies the measurement rules that apply to share brokers exactly as they apply to any other trader:
- Delivery based transactions — the total value of the sales is the turnover, whether the delivery was intended or arose by default.
- Speculative transactions — the aggregate of both favourable and unfavourable differences.
- Derivatives, futures and options — the total of favourable and unfavourable differences on squared-off trades, plus premium received on sale of options, plus differences on reverse trades.
Paragraph 5.11 also records that this method of computing turnover is solely for determining applicability of section 44AB and does not alter the classification of the income as capital gains or as business income.
Worked example
A broking proprietor's books for the year show:
| Item | Amount | Counts towards section 44AB? |
|---|---|---|
| Client buy and sell contract value routed through the terminal | Rs 412,00,00,000 | No |
| Brokerage credited in the books | Rs 68,40,000 | Yes |
| Own-account delivery trades — sale value | Rs 21,00,000 | Yes — full sale value |
| Own-account intraday equity, favourable differences | Rs 3,10,000 | Yes |
| Own-account intraday equity, unfavourable differences | Rs 2,45,000 | Yes — added, not netted |
| Option premium received on sale of options, own account | Rs 1,90,000 | Yes |
| Depository and DP charges recovered at cost from clients | Rs 4,20,000 | Reimbursement — see paragraph 5.15 |
Section 44AB turnover = 68,40,000 + 21,00,000 + 3,10,000 + 2,45,000 + 1,90,000 = Rs 96,85,000, against a client contract value four hundred times larger.
The exchange's annual turnover statement is a record of contract value, and for share brokers that figure has no relationship to the section 44AB test. Start from the brokerage income account and the proprietary trading account, and reconcile to the exchange statement only as a completeness check on the proprietary book.
Audit checklist
- Confirm that client securities are never transferred into the broker's name — the factual premise of paragraph 5.10.
- Take brokerage as accounted in the books, not as reported by the exchange.
- Identify the proprietary book separately and measure it under paragraph 5.11.
- Add favourable and unfavourable differences on speculative and derivative own-account trades; do not net them.
- Apply the identical treatment to a sub-broker.
- Treat pure reimbursements of depository and statutory charges under the paragraph 5.15 reimbursement principle.
Common mistakes
- Using exchange contract value as the broker's turnover.
- Ignoring the proprietary book because "the broker only earns brokerage".
- Netting favourable against unfavourable differences on own-account trades.
- Excluding option premium received on sale of options.
- Treating a sub-broker as outside paragraph 5.10.