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GST registration applies to all commission and brokerage income irrespective of the turnover limits of the taxpayer. This article discusses the GST implications on commission agents and brokers.
An agent is defined under the GST law as a person who carries on the business of supply of goods or services on behalf of another person (principal). An agent includes broker, commission agent, factor, auctioneer, or a mercantile agent. He carries out activities under the principal-agent relationship.
As per Section 7 of the CGST Act read with the Schedule I, ‘Supply of goods, by a principal to his agent or by an agent to his principal, where the agent supplies such goods on behalf of the principal’ is chargeable to GST even if made without consideration, but for conducting business.
The definition of an agent, as discussed above, includes ‘supply or receipt of goods on behalf of the principal’. Thus, a principal-agent relationship is an essential factor for determining whether a transaction is covered under the definition of an agent.
For this, it is essential to understand whether the agent is carrying out the activity as a representative, i.e. ‘supplying or receiving the goods on behalf of the principal.’ The key criteria for determining the existence of a principal-agent relationship is ‘how an invoice is raised?’.
Here, the important point is whether the agent has the authority to pass/receive the title of goods on behalf of the principal. Let us understand better with the help of below scenarios.
Mr X appoints Mr Y for purchasing certain goods. Here, Mr Y identifies Mr Z as a supplier and asks him to supply the goods to Mr X by raising an invoice on Mr Y. Thus, Mr Y is not involved anywhere, and so he does not fall under the definition of an agent as per Schedule I.
But, in a similar situation, if Mr Y obtains the delivery of goods from Mr Z on behalf of Mr X where Mr Z raises the invoice on Mr Y, then such a transaction is covered under the definition of agent and is a supply under Schedule I.
Mr A is an auctioneer appointed by M/s ABC to auction certain goods. Mr A identifies a few potential buyers and carries out the auction process. Here, M/s ABC issues goods to the highest bidder by raising an invoice in the name of the bidder. Thus, Mr A is nowhere involved in the supply of goods, and so he does not fall under the definition of supply as per Schedule I.
In a similar situation, Mr A issues the goods on behalf of M/S ABC to the highest bidder and also raises the invoice in his name (i.e. Mr A). Here, Mr A is not only providing auctioneering services but also has an authority to transfer the title of goods on behalf of M/s ABC and thus, this transaction is covered under the definition of supply as per Schedule I.
Let us understand how a commission agent was charged to tax earlier under the Service tax regime and now under GST with the help of an example.
Consider Mr A; a commission agent charges Rs.5,000 as his service charge within India.
(Amount in Rs)
|Particulars||Taxed Under Service Tax Regime (Rs)||Taxed Under GST (Rs)|
|Value of taxable supplies||5,000||5,000|
|Service tax @ 15%||750||–|
|CGST @ 9%||–||450|
|SGST @ 9%||–||450|
Thus, the introduction of GST has increased the tax burden on brokers and commission agents.
Any person who falls under the definition of an agent is required to obtain GST registration. The threshold limit condition for registration does not apply to commission agents. So, a person is required to obtain compulsory registration once he falls under the definition of an agent as mentioned above. He can register himself as an NRTP (Non-Resident Taxable person) if he is making a taxable supply in India.
The composition scheme was earlier available only for the suppliers of goods, but the scheme is now available for service providers as well as vide CGST (Rate) notification no. 2/2019 dated 7th March 2019. Thus, brokers and commission agents with an annual aggregate turnover of up to Rs.50 lakh can opt for composition schemes. Opting for composition schemes will reduce the compliance burden of small taxpayers.
However, if an Indian exporter pays a commission to an FCA (foreign commission agent), he is not liable to pay GST as the place of supply is out of India and reverse charge does not apply to Indian exporters.
Basic requirements: An agent is required to issue a tax invoice for the supply of its services. In the case of exempt supplies, he can issue a Bill of Supply. Further, the SAC code should be mentioned on the tax invoice as per the turnover limits:
e-Way Bill Requirements: A pure agent is required to generate e-way bills if he is also working as a transporter, and the consignor/consignee does not generate the e-way invoice.
e-Invoicing Requirement: If the agent is earning more than the threshold limit notified, as annual turnover in any FY from FY 2017-18, then he/she must comply with the e-invoicing system.
The value for the calculation of GST for an agent is different for each of the below cases:
As Sole Agent (Rule 29): In case of supply made as a sole agent, the value of supply shall be:
As a Pure Agent (Rule 33): A pure agent is one who makes a supply to the recipient and also incurs expenditure on behalf of the recipient for other ancillary services and claims reimbursement of the same without adding it to the value of his supply. Here, the relationship between the service provider and service recipient is on a principal to principal basis. But, for ancillary services, it is that of a pure agent. As per the Valuation Rules of GST, expenditure incurred as a pure agent will be excluded from the value of supply.
GST at 18% is applicable to all taxable value of supply provided by an agent, including the sale/purchase of advertising space/time. Following are some of the services provided for a fee/commission or on a contract basis:
Usually, a supplier of goods/services is required to pay GST. But, in some cases, a recipient of goods/services is required to pay GST called a reverse charge mechanism. Services provided by a broker or a commission agent to the following individuals are covered under reverse charge mechanism:
GST Rates for Commission Agents and Brokers
The following services provided for commission are exempt under GST:
In the case where an agent supplies goods on behalf of his principal, then both principal and agent are jointly and severally liable to pay GST on such taxable goods. For example, if M/s X appoints Mr Y as an agent to sell its goods. Mr Y sells such goods to Mr Z on behalf of M/s X. In this case, M/s X and Mr Y are jointly and severally liable to pay GST on such goods, if either of them fails.
Forms and Returns: A registered broker and a commission agent are required to file the below returns:
Maintenance of Accounts: All agents are required to maintain accounts showing the particulars of: