GST On Commission: As defined under the Central Goods and Service Tax (CGST) law, an agent carries on the business of supplying goods or services on behalf of another person known as the Principal. An agent includes a broker, commission agent, del credere agent, arhatia, auctioneer, factor, or even a mercantile agent. He takes part in all the activities under the principal-agent relationship.
Categories of Agents
According to the purpose of applicability of GST rules, there are mainly three categories of agents. These are mentioned as below:
Commission Agent is defined as any person who acts on behalf of another person and is involved in the transaction or sale or purchase of goods or provision or receipt of services. Commission agents, while working on behalf of another person, deals with goods or services or documents of title to such goods or services, collect payment of sale price of such goods or services, assures the collection or remuneration for such goods or services and is directly associated with such activities involving sale or purchase of such goods and services.
If a person works as an estate broker, he gets a commission of 1% on the sale price. He is thus considered a commission agent. Del credere agent is also considered a commission agent.
Carry and Forwarding Agent (C&F)
C & F agents receive a specific commission only if the transaction is routed through them. If a Fast-Moving Consumer Goods (FMCG) company hires a C&F agent, the company must supply the goods to him on issuing an invoice. Thereby, the agent distributes the goods to other retailers by issuing invoices of their own company’s name.
Whether the agent is a commission agent or a C&F agent is determined by the basis of an authorization of title of transaction of goods and services on behalf of the Principal. A C&F has complete authority over such trade. The name of the Principal might or might not be a secret to the final buyer.
A pure agent, as discussed in the CGST act, is a person who receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement for such supplies from the recipient of the main supply while involved in a transaction. While the relationship between the provider of service and recipient of service, in terms of the leading service, is on a principal-to-principal basis, the relationship between them is that of a pure agent in case of other ancillary services.
A pure agent is associated with a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both. He does not hold any title to the goods or services or both, thus procured or provided as a pure agent of the recipient of the supply. A pure agent does not have his interest in such goods or services so procured only receives the original amount as incurred to procure such goods or services along with the amount received for the supply he provides on his account.
GST Rate and Service Code
The general rate of GST on Commission is 18%. Services of commission agents in wholesale trade fall under section 99611, whereas commissioning agent services in retail business fall under 99621. Services of Clearing and Forwarding Agent (C&F) are not considered under this.
Requirement for Registration Of Various Agents
For Commission Agent – Commission agents will get registered in GST only if the commission amount is more than Rs’ threshold limit. 20/10 lakhs.
For C&F Agent – As discussed under Section 24(vii) of the CGST law, a person making a taxable supply of goods or services or both on behalf of other taxable persons as an agent, in this case, C&F agent, is required to get registered even if turnover is less than the threshold limit.
In the case of a person being a commission agent in some transactions and a C&F agent in other transactions, the aggregate turnover will be determined as per the mentioned rules.
Schedule 1: Regarding supply of goods without consideration
Goods transferred by a principal to an agent or vice versa with consideration are treated as supply, and an invoice is mandatory to be raised for the consideration. Whereas, if the goods are to be transferred without consideration between agent and Principal, it is also treated as supply according to Point number 3 of Schedule I.
The agent in his name is issuing the invoice for further supply. Any provision of goods from the Principal to the agent would fall within Schedule I. It may be noted that in cases where the agent issues the invoice to the customer in the name of the Principal, such agent shall not fall within the ambit of Schedule I of the CGST Act. Similarly, where the goods being procured by the agent on behalf of the Principal are invoiced in the name of the agent, then further provision of the said goods by the agent to the Principal would be covered in Schedule I. Therefore, it is crucial whether or not the agent has the authority to pass or receive the title of the goods on behalf of the Principal.
Value of Goods Supplied as Transacted through an Agent
According to Rule 29 of CGST Rule, when the goods are provided without consideration and covered under Schedule I, the value shall be the supplied goods’ open market value. Thus, 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person.
If a principal deals with supplies groundnut to his agent, the agent supplies groundnuts of the same kind and quality in subsequent supplies for five thousand rupees per quintal on the supply day. Another supplier also provides groundnuts of like type and quality to the said agent at the price of four thousand five hundred and fifty rupees per quintal or equivalent quantity. The value of the supply determined by the Principal shall be four thousand five hundred and fifty rupees per quintal or where he exercises the option; the matter shall be 90 percent of five thousand rupees, i.e., four thousand five hundred rupees per quintal. The value has been defined as per rule 30, which states that value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquiring such goods.
Rule 29 covers only C&F Agents who store and sell goods on behalf of the Principal. This rule does not cover distributor or selling agents who purchase goods from the Principal and then sell on their own. Here, their relations are on a Principal-to-Principal basis.
Concept of a Pure Agent
A person associated with the payment on behalf of another person and takes the only remuneration in accordance with that payment is called a pure agent. Suppose a person hires a chartered accountant to open a private company. This chartered accountant makes payment to MCA for registration fees on the client’s behalf and does all the monetary transactions. After that, he invoices or accounts for the actual amount made to MCA, along with his payment. In this case, the C.A. is working as a pure agent in payment made to MCA.
GST Cannot be Applied to Such Reimbursement of the Amount
A person associated with the transaction can be termed as a ‘Pure Agent’ under the necessary conditions thus followed:
- The transaction made by the pure agent on behalf of the recipient of supply has been separately shown or is reflected clearly in the invoice that the pure agent has issued to the service recipient.
- The supplies as acquired by the pure agent from the third party as a pure agent of the supplied recipient are added to the services he supplies on his account.
- The person does not use for his interest such goods or services as acquired.
- He receives only the actual amount sustained to procure such goods or services in addition to the amount received for supply he provides on his account.
Example: A tour operator gives a package of Rs. 50,000 to Mr. X. The tour operator provides only one invoice or transaction bill of Rs. 50,000. The accommodation and transport cost has not been shown separately, and the tour operator earns a profit. Therefore, he is not considered a pure agent, and GST will be applicable to a total amount of Rs. 50,000. Similarly, if the tour operator charges Rs. 10,000 for a cab to be paid to the owner of the cab and Rs. 40,000 for other additional services and show such R.S. 10,000 as a separate item in the invoice, he is considered a pure agent. If he pays only Rs. 9,000 to the cab driver but charges Rs. 10,000, then GST is chargeable on the entire amount of Rs. 10,000.
A similar example is Stamp duty and Security Transaction Tax (STT) collected from the buyer, and stockbroker pays it acting as a pure agent of the customer. These are not includible in the taxable amount for GST.
In GST, ITC is available only if the tax invoice contains the GSTIN of the recipient and the invoice is uploaded. The pure agent must ensure that the supplier invoices are in the Principal’s name with his GSTN number.
Air Travel Agent
The value of the services supplied concerning booking of tickets for travel by air provided by an air travel agent shall be deemed an amount calculated at the rate of five percent of the basic fare in domestic bookings. Whereas international bookings, the rate is ten percent of the basic fare of passage for air travelling.
For this sub-rule, the expression “basic fare” means that part of the airfare on which Commission is usually paid to the airlines’ air travel agent.
GST applicable on an Exporter in India Paying Commission to a Foreign Commission Agent
Suppose an exporter in India pays Commission to a foreign commission agent, the place of supply is out of India, mainly in that foreign country. Therefore, GST would not be applied and also, no reverse charge is applicable to Indian exporter. This has been broadly discussed under Frequently Asked Questions (FAQ) on GST Chapter 21 Q No. 25 that CBI&C has issued on 15th December 2018.
Important Case Law
There has been a case in 2018 in K.K. Polymers (Prop. Advantage Agency (P.) Ltd.), Rajasthan, where an applicant was working as del credere agent (DCA) of Principal. The Principal supplier gave the del credere agent an extra discount for an early payment passed on by a del credere agent (DCA) to the final customer. It was conditioned that such passing on of additional discount will be done as a pure agent of Principal and no GST is payable. However, any amount commissioned by the DCA on account of early payment is like a supply made to the Principal. This is because of business support services on which the DCA is already paying GST.
Maintaining or Managing the Accounts and Records
Every agent must maintain or keep track of the accounts which will reflect the: –
A detailed account of authorization as received by him from each Principal on receiving or supplying goods or services on behalf of such Principal individually.
Particulars dealing with the description, value and quantity (if applicable) of traded goods or services as received on behalf of every Principal separately.
Particulars with description, value and quantity (if applicable) of traded goods or services as supplied on every Principal’s behalf.
Details of accounts furnished to every Principal.
Tax paid on receipts or bills or supply of goods or services effected on behalf of every Principal.
A person having custody of goods in the capacity of a C&F agent shall maintain accurate and correct records regarding goods handled by him on behalf of another person.
FAQ’s on GST On Commission
Is GST payable on Commission?
As per the rules, GST is to be charged on Commission at the rate of 18%. If a person is registered under GST charges commission for a transaction in his ancillary business, then also GST is applicable.
Are commission agents required to register under GST?
Commission agents must get registered under GST if the total amount of Commission in a financial year is more than the threshold value of Rs. 20 lakhs, whereas this limit is Rs. 10 lakhs for selected states.
Is GST chargeable even on real estate commission?
Yes. GST is chargeable on real estate commission at the same rate.