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Published on:
March 21, 2023
By
Harshini

GST Liability on Commission Agents/brokers

Commission agents and brokers play the crucial role of facilitating transactions between parties, earning their keep through commissions. These intermediaries see that deals get done, matching buyers and sellers so business can flow. 

Under the goods and services tax (GST) framework, their status and obligations were clarified. As representatives acting on behalf of principals, agents and brokers technically supply no goods or services themselves. Rather, their involvement stands as an extension of the principal in the eyes of this Indirect tax. Thus the principal remains responsible for remitting GST on the underlying transaction while the intermediary carries no such duty. This designation aims to reduce the burden at the middleman level so commerce faces fewer hurdles.

Through aligning tax treatment with economic reality, laws seek the dual goals of compliance and growth. Assigning tax liability to the actual supplier untangles a complex web of intermediation while avoiding cascade effects. This regime acknowledges the agent's hand in facilitation but attributes the final supply to the root entity's role, maintaining flow while collecting revenue.

The principal bears responsibility for remitting GST on the worth of goods and services provided, while the percentage paid to the representative is viewed as part of the transaction. The agent issuing the invoice must note the brokerage in the invoice or receipt based on their registration status under the GST regime. Those registered can claim credit for taxes paid on overhead. Nevertheless, input tax credit is unavailable for taxes paid by the principal regarding supply. The complexity lies in balancing the taxation responsibilities and recovery of the myriad costs associated with representation between multiple entities within the distribution network. While policies aim to maximize revenue, considerations of equity ensure representatives and principals share accountability appropriately.

While commission agents and brokers themselves face no direct liability for goods and services value-added tax, they must provide invoices and receipts denoting commissions as a portion of prices. Principals take on responsibility for remitting the applicable sales levies on full amounts charged for items or work coordinated through representatives, encompassing compensation paid to such intermediaries. Lengthier or more intricate dealings may necessitate intimating roles and obligations in tax remittance in written form to avoid later misunderstanding over responsibilities as defined by statute.

Commission agent under GST

Commission agents play an important role as intermediaries, facilitating transactions between principals and end customers. They earn income in the form of a percentage paid for their services. Under India's Goods and Services Tax regime, the tax implications for commission agents can vary based on their level of involvement in the supply process.

If a commission agent takes direct responsibility for supplying goods or services on behalf of the principal, then from a GST perspective, the supply is considered to have been made directly by the principal. The agent does not owe GST on the value of the items handed over, while the principal is liable for paying tax on the full transaction amount. However, when commission agents simply connect principals with customers, leaving the actual supply arrangements to the principal, no tax liability arises for the agent. Complex structures require careful evaluation to determine the exact tax treatment dictated by an agent's precise business activities and contractual obligations.

While commission agents operate solely as intermediaries and do not incur GST liabilities, those supplying goods or services themselves face different tax obligations. Any agent conducting business in their own name must charge and remit GST on all supplies above the annual threshold. Currently set at twenty lakh rupees nationally or ten lakh rupees in specified states, reaching this limit triggers mandatory enrollment.

Registered dealers may claim credits for GST remitted on business expenditures to offset future taxes. However, credits are not applicable to taxes paid by principals on consignments' supply, as the agent only acts as a representative in such instances. Variations in an individual's role necessitate diverse GST handling, with independent suppliers subjected to the full requirements unlike pure commercial representatives. Compliance depends on the specific nature and scope of each agent's commercial activities.

Composition Scheme and Commission Agent

Under India's Goods and Services Tax regime, the composition scheme provides a simplified option for small businesses with annual incomes up to 150 million rupees. Those in certain categories can earn up to 75 million. It lowers tax rates and reduces compliance work. Commission agents too can use this scheme if they qualify. To qualify, a commission agent's revenue last year must not exceed 150 million rupees. Additionally, they cannot supply goods or services on behalf of other taxpayers. Those taking advantage of the composition scheme benefit from its simplicity. While rules are less complex, savings allow reinvestment into business growth. Eligible commission agents, by opting in, can focus more on customers and less on paperwork. Overall the scheme aims to help smaller operations thrive with reduced administrative burden. The commission representative must avoid any interstate deliveries.

Provided the commission agent meets those conditions, he can select the simplified plan and pay tax at a reduced 0.5% rate on taxable supplies made on behalf of another. However, choosing the simplified option means losing the ability to claim input tax credits on business expenses. Importantly, acting as an intermediary by facilitating supplies of goods or services between others disqualifies one from opting for the simplified taxation method. Instead, he would be viewed as a mediator and GST implications analyzed differently, as explained previously.

Conclusion

In recap, commission specialists can take advantage of the simplified plan on the off chance that they fulfill the qualification standards and are not engaged with supplying merchandise or administrations representing another assessable individual. In any case, if they are acting as arbiters and giving merchandise or administrations representing another assessable individual, they won't be qualified for the simplified plan and will be subject to unique GST ramifications. 

Notwithstanding, there is one special case - agents in certain businesses, for example, transport or expositions and occasions, can in any case utilize the simplified plan in characterized conditions. On the other hand, the guidelines are somewhat unique for import specialists. While import experts managing inside India exchanges can utilize the simplified plan, specialists taking care of imports specifically from outside nations won't qualify.

Suggestions

CGST/IGST Act, 2017

Kerala GST Department

Availment of ITC 

Updated on:
March 21, 2024