The Goods & Services Tax is now the only indirect tax being levied on various supplies in India. GST is also applicable to agents, including any income earned through commissions.
This article will tell you everything you should know about the applicability of GST on commission income and Agents.
GST on Commission in India
Let’s first understand the major implications.
- GST rate on commission income: GST is mandatory for all commission agents, whether their annual turnover is above the threshold or not.
- GST registration is compulsory for every person who makes taxable supplies of goods and services on behalf of another taxable person.
- GST on brokerage: The tax will be applicable on any income earned through commission or brokerage services.
- TDS is also deductible on GST bill relating to a commission value of a supply.
- The rate of GST on commission (agent) services is 18 per cent.
- Input credit is available for the GST on commission paid on these services.
- GST is not applicable to foreign commission agents.
- An agent is a person who is paid a commission for making supplies of goods and/or services on behalf of someone else (Principal). This includes brokers, auctioneer, commission agents and all other types of agents.
- A pure agent under GST is “someone who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply.”
- A pure agent has to sign an official agreement with the recipient, according to which he/she will also incur any expenditure that may occur during the supply.
- He doesn’t hold any right to the ownership of the goods or services being supplied.
- Doesn’t use any such goods or services for his personal interest.
- Receives the actual supply value in addition to the reimbursement for any additional supply provided by him on his account.
- The additional expenditures incurred during a supply on behalf of the recipient will not be considered a taxable supply and so should not be taken into account while calculating taxes. This is applicable only to the following conditions:
- The supplier is a pure agent acting on behalf of the recipient and acts by recipient’s authorization when making payment to a third party.
- Any such payment made by a pure agent to the third party should be separately mentioned in the invoice received by the recipient from his pure agent.
- The supplies received by a pure agent from the third party should be in addition to the actual supplies serviced by him on behalf of the recipient.
For example, when a businessman hires an agent to perform some kind of service, they decide on a value amount for the actual service. However, if the agent has to hire some external help or make some other supply on behalf of the businessman, he can claim its reimbursement from the businessman. This will not be included in the total supply value. GST on commission agents will only be applicable to the actual value of supply.