GST liability on Commission Agents/brokers

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GST liability on Commission Agents/brokers
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• 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

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• the supply between the principal and the third
  party and
• 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
  intermediarys 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.

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• 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.

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• 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 (agents 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 CF 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 CF
  agent. If he has the authority to pass/receive
  goods on behalf of the original company, he is
  designated as CF Agent for the
  company.

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• 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.

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• 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

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• 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.

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• 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 gt GSTR-3B Monthly
  summary return.
• GSTR-1 Return for reporting outward supplies.
• gt GSTR-9 Annual return.
• gt GSTR-5 and GSTR-5A Non-resident foreign
  taxpayers.

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• 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
  exemptionDirect 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.

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• 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/go
  ods-and-service-tax/gst-liability-commission-agent
  s-brokers.htmlCopyright Taxguru.in