Goods and service tax is a revolution in the Indian History There are many aspects in Goods and service Tax and one of the main areas where lot of doubts and question arises is whether GST is attracted on commission and brokerage.

1. GST liability on Commission Agents/brokers

2. Goods and service tax is a revolution in the Indian History There are many aspects
in Goods and service Tax and one of the main areas where lot of doubts and
question arises is whether GST is attracted on commission and brokerage.
“Commission typically refers to income earned by a person for arranging a
transaction between two parties and earning a percentage of the sales
proceeds. The commission earned in such a scenario is taxable under GST as a
service at 18%,” GST registration applies to all commission and brokerage
income irrespective of the turnover limits of the taxpayer. “Persons who make
taxable supplies of goods or services or both on behalf of other taxable
persons whether as an agent or not are required to take registration
regardless of turnover,” Generally, an “intermediary’ is a person who arranges
or facilitates a supply of goods, or a provision of service, or both, between two
persons, without material alteration or further processing. Thus, an
intermediary is involved with two suppliers at any one time:

3. (i) the supply between the principal and the third party; and
(ii) the supply of his own service (agency service) to his principal, for which a fee or commission
is usually charged.
For the purpose of this rule, an intermediary in respect of goods (such as a commission agent i.e.
a buying agent or selling agent, or a stockbroker) is excluded by definition. Also excluded
from this sub-rule is a person who arranges or facilitates a provision of a service (referred to
in the rules as “the main service”), but provides the main service on his own account.
“Nature and value: An intermediary cannot alter the nature or value of the services, the
supply of which he facilitates on behalf of his principal, although the principal may authorize
the intermediary to negotiate a different price. Also, the principal must know the exact value
at which the service is supplied (or obtained) on his behalf, and any discounts that the
intermediary obtains must be passed back to the principal. Separation of value: The value of
an intermediary’s service is invariably identifiable from the main supply of service that he is
arranging. It can be based on an agreed percentage of the sale or purchase price. Generally,
the amount charged by an agent from his principal is referred to as “commission”. Identity
and title: The service provided by the intermediary on behalf of the principal is clearly
identifiable.

4. Even in other cases, wherever a provider of any service acts as an intermediary for another
person, as identified by the guiding principles outlined above, this rule will apply. Normally, it
is expected that the intermediary or agent would have documentary evidence authorizing
him to act on behalf of the provider of the ‘main service’.” Commission agent under GST
Section 2 sub-section (5) of the CGST Act, 2017: – As per Section 2 sub-section (5) of the
CGST Act 2017, “agent” means a person, including a factor, broker, commission agent,
arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name
called, who carries on the business of supply or receipt of goods or services or both on behalf
of another. 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.

5. 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. 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?’. If an invoice is raised in his name
(agent’s name) – It would be covered under Schedule I transactions and thus liable to GST.
If an invoice is raised in the name of principal –
Not covered under Schedule I. There are different types/categories of Agent and one should know this
Types/Categories of Agent: Commission agent: If a person is working as a real estate broker and getting a
commission of 1% on the sale of every property, then he will be identified as a commission agent under the CGST
Act.
Carry & Forwarding Agent: A newspaper company appoints a person as a C&F agent to transport their newsprint from
their printing press to all the depot across the State. The goods are sent by the company to him on issuing an
invoice. The deputed person may hire some third party to execute the task and issue invoices in the name of the
firm for which he is appointed as C&F agent. If he has the authority to pass/receive goods on behalf of the original
company, he is designated as C&F Agent for the company.

6. 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. Liability of Principal and Agent 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. GST at 18% is applicable to all taxable value of supply provided by an agent, including the
sale/purchase of advertising space/time.

7. Following is some of the services provided for a fee/commission or on a contract basis:
Sale of land/building.
Any retail/wholesale trade service.
Property management service.
Real estate appraisal service.
Commission agent services to negotiate wholesale commercial transactions.
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:
Bank
Financial institution

8. Principal-Agent Liability
When the commission agent/broker supplies any services/goods on behalf of the principal owner,
then both are jointly liable to pay the GST on the taxable goods. “One of the key pointers to
identify whether a person is an ‘agent’ or ‘principal supplier’ is to follow the document trail
of invoicing. To establish the ‘agency’ requirement, the invoice for the original supply should
be raised by the supplier and not by the agent,” Each contract has to be analyzed separately
to establish the tax taxability of commission and brokerage. “To ensure that only the
commission portion of the transaction is taxed at the hands of the commissioning agent and
not the entire sales proceeds, the commissioning agent should ensure that he is acting only
as an ‘agent’ of the original supplier and not carrying out the supply on a principal-to-
principal basis,” Under GST the supplier of goods/services is required to pay GST. However, at
times even the recipient of goods/services is required to pay GST. This is known as the
reverse charge mechanism. Services provided by a broker or a commission agent to banks
and other financial institutions are covered under reverse charge mechanism.
Agent – compliances under GST: Registration under GST applies to all commission and
brokerage income irrespective of the turnover limits of the taxpayer. 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. 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.

9. Composition Scheme and Commission Agent:
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. Any registered commission agent is required to file the below returns
under the GST Act: > GSTR-3B – Monthly summary return.
 GSTR-1 – Return for reporting outward supplies.
 > GSTR-9 – Annual return.
 > GSTR-5 and GSTR-5A – Non-resident foreign taxpayers.

10. Maintenance of Books of accounts:
All agents are required to maintain accounts showing details of: Authorisation from principal to supply/receive
goods on his behalf. Quantity and value of goods/services received on behalf of the principal. Details of
accounts furnished to the principal. Taxes paid on supply/receipt of goods/services on behalf of the
principa Exemptions under GST: There are a few services provided by commission agents that are exempt
from GST. This includes the services provided by fair price shops (those licensed to distribute essential
commodities by an order issued under section 3 of the Essential Commodities Act, 1955, to the ration card
holders under the Targeted Public Distribution System) to the Central Government on sale of rice, wheat,
and other coarse grains and to the state government or Union Territories on sale of kerosene, sugar, edible
oil, etc. Apart from this, support services to agriculture, forestry, fishing, and animal husbandry are also
exempt from GST. Meanwhile, services under cultivation of plants and rearing of all life stock (except
horse), such as the following are also eligible for due exemption:
Direct agricultural operations
Farm labour supply services
Certain agricultural processes like tending, pruning, cutting, harvesting, drying, sun drying, etc.
Renting/leasing of agro machinery or a vacant land
Warehousing and storage activities of agricultural produce
Extended agricultural service
Services provided by an Agricultural Produce Marketing Committee
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.

11. Example 1
‘X’ is a manufacturer and supplier of machines. ‘Y’ helps ‘X’ in locating potential client ‘Z’ to sell his
machines and finalises the contract of supply of machines by ‘X’ to ‘Z’. In consideration for his
services rendered to ‘X’ , ‘Y’ charges commission for which he invoices ‘X’ and the payment of the
same is released by ‘X’ to ‘Y’.In this example , ‘X’ and ‘Z’ are the two parties transacting in the
supply of goods or services (i.e. main supply). In this arrangement, ‘Y’ is providing the ancillary
supply of arranging or facilitating the ‘main supply’ of machinery between ‘X’ and ‘Z’ and therefore,
‘Y’ is an intermediary and is providing intermediary service to ‘X’.
Example 2
‘A’ and ‘B’ have entered into a contract as per which ‘A’ needs to provide a service of, Annual
Maintenance of tools and machinery to ‘B’. ‘A’ subcontracts a part or whole of it to ‘C’. Accordingly,
‘C’ provides the service of annual maintenance to ‘A’ as part of such a sub-contract, by providing
annual maintenance of tools and machinery to the customer of ‘A’, i.e. to ‘B’ on behalf of ‘A’. Even
though ‘C’ is dealing with the customer of ‘A’, but ‘C’ is providing the main supply of Annual
Maintenance Service to ‘A’ on his own account, i.e. on a principal to principal basis. In this case, ‘A’
is providing the supply of Annual Maintenance Service to ‘B’, whereas ‘C’ is supplying the same
service to ‘A’. Thus, supply of service by ‘C’ in this case will not be considered as an intermediary.
Read more at: https://taxguru.in/goods-and-service-tax/gst-liability-commission-agents-
brokers.html
Copyright © Taxguru.in