GST Liability on commission Agent/Brokers, GST in India, Goods and Service Tax, GST Registration, Ebizfiling

A complete guide on GST on Commission Agent/ Brokers

Introduction

In Indian history, the Goods and Service Tax represents a revolution. There are numerous facets to Goods and Services Tax, and one of the most frequently asked questions is whether GST is levied on commission and brokerage. “Commission normally refers to income received by an individual for managing a deal between two parties and receiving a cut of the deal’s proceeds. Regardless of the taxpayer’s annual turnover limits, every commission and brokerage income is subject to GST registration. The thorough information in this article will help you know more about GST on Commission Agents or Brokers.

Who is considered a broker or commission agent under the GST?

A person who undertakes the business of supplying goods or services on behalf of another person is referred to as an agent under the GST law. A broker, commission agent, factor, auctioneer, or mercantile agent are examples of agents. He performs certain tasks under the principal-agent relationship.

Applicability of GST on Brokers or Commission Agents

Brokers and commission agents are subject to GST under Section 7 of the CGST Act when they “provide goods, by a principal to his agent or by an agent to his principal, where the agency supplies such goods on behalf of the principal.”

GST Registration for Brokers or Commission Agents

A GST registration is required for everyone who matches the agent description. The registration threshold limit restriction does not apply to commission agents. As a result, if someone matches the above definition of an agent, they must obtain mandatory registration. One can sign up as a Non-Resident Taxable Person (NRTP) if he makes a taxable supply in India.

 

According to CGST (Rate) announcement in 2019 dated March 7th, 2019-:

  • The composition scheme is now open to service providers as well. (Previously, it was only available to suppliers of products.)
  • Brokers and commission agents having a total yearly turnover of up to Rs. 50 lakh are eligible for composition plans.
  • Small taxpayers can save time and money by using composition programs.
  • If an Indian exporter pays a commission to an FCA (foreign commission agent), he is exempt from GST because the place of supply is outside the India and reverse charge does not apply to Indian exporters.

Invoicing Requirements for a Broker or Commission Agent

  1. Basic requirements: An agent must issue a tax invoice to perform its services. In the case of exempt supplies, an agent may issue a Bill of Supply. T he SAC code needs to be listed on the tax invoice according to the turnover limits:
  • Mandatory for B2B tax invoices up to Rs 5 crore – four digits.
  • Optional for B2C tax invoices up to Rs 5 crore – four digits.
  • A six-digit number is necessary for B2B tax invoices that are valued more than Rs 5 crore.
  1. Requirements for e-Way Bills: If a pure agent is also a transporter and the consignor/consignee does not provide an e-way invoice, he must generate e-way bills.

  1. Requirements for e-Invoicing: The agent is required to utilize the e-invoicing system if the annual turnover exceeds the declared threshold limit in any fiscal year (FY).

What Does Supply Mean to Brokers and Commission Agents?

The value used to calculate GST for an agent differs in each of the following scenarios:

 

Rule 29 (As a Sole Agent): The value of a supply made as a solo agent is as follows:

 

The open market value of the goods supplied is 90% of the price charged by the recipient to his customer (who is not a related person) for the supply of equivalent goods, where the items are intended for continued supply by the recipient.

 

Rule 33 (As a Pure Agent): A pure agent is a person who supplies something to the recipient, spends money on the recipient’s behalf to obtain extra additional services, and then submits a claim for reimbursement without increasing the value of the supply adding the cost. In this case, there is a principal-to-principal relationship between the service provider and service recipient. However, it is that of a pure agent for supplemental services. According to the GST Valuation Rules, expenses incurred as a pure agent are not included in the value of the supply.

GST Rates for Commission Agents and Brokers

Any taxable value of a supply that is delivered by an agent, including the sale or purchase of advertising space or time, is subject to GST at a rate of 18%. The following are some of the services provided for a fee/commission or on a contract basis:

  • Building or land for sale.
  • Any service provided to the retail/wholesale sector.
  • Property management services are provided.
  • Real estate appraisal services.
  • Commission agent services are offered for contract negotiations in wholesale business agreements.

Generally, a seller of goods or services is required to pay GST. The recipient of goods or services must pay GST in some circumstances under a reverse charge system. The reverse-charge mechanism applies to the following people who get services from a broker or commission agent:

  • Financial institution
  • Bank

Conclusion

Registration under GST applies to all commission and brokerage income, regardless of the taxpayer’s turnover limits. Commission agents are exempt from the registration requirement’s threshold restriction. Therefore, once a person meets the criteria for being considered an agent as stated in this article, must get mandatory registration. If someone is making a taxable supply in India, he can register himself as a NRTP (Non-Resident Taxable Person).

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