Regardless of the taxpayer’s turnover limits, GST registration applies to all commission and brokerage revenue.
Who acts as a broker and commission agent under GST?
- Who acts as a broker and commission agent under GST?
- Applicability of GST for Brokers and Commission Agents
- 1st scenario
- 2nd scenario
- GST Registration for Brokers and Commission Agents
- Broker and Commission Agent Invoicing Requirements
- What Does Supply Mean to Brokers and Commission Agents?
- Commission Agents and Brokers’ GST Rates
- GST exemptions for brokerage and commission
- Liability of the Principal and Agent under GST
A person who takes on the business of supplying goods or services on behalf of another person is referred to as an agent under the GST law (principal). A broker, commission agent, factor, auctioneer, or mercantile agent are all examples of agents. Under the principal-agent relationship, he carries out his duties.
Applicability of GST for Brokers and Commission Agents
‘Supply of goods, by a principal to his agent or by an agent to his principal, when the agency supplies such goods on behalf of the principal’ is liable to GST under Section 7 of the CGST Act read with Schedule I, even if made without consideration but for doing business.
As previously stated, “delivery or receipt of goods on behalf of the principal” is included in the definition of an agent. As a result, the existence of a principal-agent relationship is critical in assessing whether a transaction falls under the definition of an agent.
It’s crucial to know whether the agent is acting as a representative, supplying or receiving items on behalf of the principal. ‘How an invoice is raised?’ is the most important criterion for evaluating whether or not a principal-agent relationship exists.
- If an invoice is issued in his name (agent’s name), it will fall under Schedule I transactions and will be subject to GST.
- If an invoice is raised in the name of the principal Then Schedule I do not apply.
The key question here is whether the agent has the authority to pass/receive the title of the goods on behalf of the principal. With the help of the scenarios below, we can better understand.
Mr X delegated the purchase of specific goods to Mr Y. Mr Y recognises Mr Z as a supplier and requests that he supply the goods to Mr X by issuing an invoice to Mr Y. As a result, Mr. Y is not participating in anything and thus does not fit within Schedule I’s definition of an agent.
In a similar case, if Mr Y purchases items from Mr Z on behalf of Mr X, and Mr Z issues an invoice to Mr Y, the transaction is covered by the definition of agent and constitutes a supply under Schedule I.
Mr A is an auctioneer hired by M/s ABC to sell certain items at auction. Mr A selects a few possible purchasers and conducts the auction. M/s ABC then issues products to the highest bidder by issuing an invoice in the bidder’s name. As a result, Mr A is not involved in the supply of products and so does not fall under Schedule I’s definition of supply.
In a similar case, Mr A sells the products to the highest bidder on behalf of M/S ABC and raises the invoice in his name (i.e. Mr A).
GST Registration for Brokers and Commission Agents
Any person who meets the definition of an agent is needed to register for GST. Commission agents are exempt from the registration threshold limit constraint. As a result, once a person meets the above-mentioned description of an agent, he is compelled to get compulsory registration. If he makes a taxable supply in India, he can register as an NRTP (Non-Resident Taxable Person).
The composition scheme was previously only available to goods suppliers, but it is now open to service providers as well, according to CGST (Rate) announcement no. 2/2019 dated 7th March 2019. Composition plans are available to brokers and commission agents with an annual aggregate turnover of up to Rs.50 lakh. Small taxpayers would save time and money by opting for composition programmes.
However, because the place of supply is outside of India and reverse charge does not apply to Indian exporters, if an Indian exporter pays a commission to an FCA (foreign commission agent), he is not obligated to pay GST.
Broker and Commission Agent Invoicing Requirements
1. Basic prerequisites: For the provision of its services, an agent must issue a tax invoice. He can issue a Bill of Supply in the case of exempt supplies. In addition, according to the turnover limits, the SAC code should be provided on the tax invoice:
- Mandatory for B2B tax bills up to Rs 5 crore – Four digits
- Optional for B2C tax bills up to Rs 5 crore – Four digits
- For B2B tax invoices with a value of more than Rs 5 crore, a six-digit number is required.
2. e-Way Bill Requirements: If a pure agent is also a transporter and the consignor/consignee does not provide the e-way invoice, he must generate e-way bills.
3. e-Invoicing Requirement: If the agent earns more than the notified annual turnover threshold limit in any FY from FY 2017-18, he or she must use the e-invoicing system.
What Does Supply Mean to Brokers and Commission Agents?
For each of the following scenarios, the value used to calculate GST for an agent is different:
- As a Sole Agent (Rule 29): The value of a supply made as a sole agent is as follows:
The open market value of goods supplied is 90% of the price charged by the recipient to his customer (who is not a related person) for the supply of goods of a similar sort, where the products are intended for continuing supply by the recipient.
- As a Pure Agent (Rule 33): A pure agent is someone who makes a supply to the recipient and then spends money on the recipient’s behalf for additional ancillary services and then claims reimbursement without adding the cost to the value of the supply. The service provider and service recipient have a principal-to-principal connection in this case. However, it is that of a pure agent for supplementary services. Expense expended as a pure agent shall be excluded from the value of supply under the GST Valuation Rules.
Commission Agents and Brokers’ GST Rates
All taxable value of supply delivered by an agent, including the sale/purchase of advertising space/time, is subject to GST at 18%. Some of the services provided for a fee/commission or on a contract basis are as follows:
- Land/building for sale.
- Any service for the retail/wholesale trade.
- Property management services are available.
- Service of real estate appraisal.
- To negotiate wholesale business agreements, commission agent services are available.
A supplier of goods or services is usually required to pay GST. A reverse charge system, on the other hand, requires a recipient of goods or services to pay GST in specific instances. The reverse charge mechanism covers services supplied by a broker or commission agent to the following individuals:
- Financial institution
GST exemptions for brokerage and commission
GST exemptions apply to the following commission-based services:
1. Services provided by fair-priced stores:
- On the selling of rice, wheat, and other coarse grains to the Central Government.
- On the sale of kerosene, sugar, edible oil, and other products, to the state government or the Union Territories.
2. Agriculture, forestry, fishing, and animal husbandry receive support services.
3. Services related to plant cultivation and animal raising (excluding horses), such as:
- Agricultural operations on the ground
- Services for farm labour supply
- Agricultural tasks such as tending, trimming, cutting, harvesting, drying, sun drying, and so on.
- Renting or leasing agricultural gear or a plot of land
- Agricultural produce warehousing and storage activities
- Agricultural service that is more extensive
- An agricultural Produce Marketing Committee provides services.
Liability of the Principal and Agent under GST
When an agent provides products on behalf of his principle, both the principal and the agent are equally and severally liable for GST on those taxable goods. For example, suppose M/s X hires Mr Y to promote its products as an agent. On behalf of M/s X, Mr Y sells such products to Mr Z. If either of them fails to pay GST on such products, M/s X and Mr Y are jointly and severally liable.
- Forms and Returns for GST Compliance for Brokers and Commission Agents: The following returns must be filed by a licenced broker and a commission agent:
- Return for reporting outward supplies (GSTR-1).
- GSTR-9 is the annual tax return.
- Non-resident foreign taxpayers (GSTR-5 and GSTR-5A)
- Accounts must be kept: All agents are expected to keep accounts that show the following information:
- Principal’s permission to supply/receive items on his behalf.
- Amount and value of goods/services received on the principal’s behalf.
- Accounting information was provided to the principal.
- Taxes paid on behalf of the principle on the supply/receipt of goods/services.