Agents under GST

[CA Ayush Agrawal]

GST Registration for Agents & Taxability of Pure Agent

In GST, special provisions have been provided for agents. To begin, GST registration is mandatory for agents, irrespective of annual aggregate turnover in a financial year. In this article, we look at GST registration for agents and related provisions.

Agents Definition under GST Act

The GST Act defines an Agent as a person including a factor, broker, commission agent, 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.

GST Registration

GST registration is mandatory for all agents. The GST Act states that any persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise must be registered under GST.

Is GST applicable for Agents and Brokers?

Yes, GST is applicable for agents and brokers. However, to understand the applicability and supply on which GST is applicable, we first understand the nature of work of a pure agent. A pure agent 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.

For example, a business approaches a Custom Broker. The business requires customs clearance for an import consignment. To complete the task, the Customs Broker engages the services of a transporter for delivery of goods to the business. The customs broker pays the transporter and claims reimbursement from the business.

In this scenario, the main service provided is that of customs clearance, while an ancillary service was provided to complete the main task for which reimbursement was claimed. In such a case, the part of value delivered should only be that of the customs clearance and should not include the transportation.

Pure Agent under GST

The following conditions must be present to classify someone as a pure agent:

• Enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both.
• Neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply.
• Does not use for his own interest such goods or services so procured.
• Receives only the actual amount incurred to procure such goods or services in addition to the amount received for the supply he provides on his own account.

Taxability of Pure Agent

While calculating value of taxable supply made by a pure agent, the expenditure incurred on behalf of the recipient of services should not be taken into account. Further, the valuation rules provide that expenditure incurred as pure agent, will be excluded from the value of supply, and thus also from aggregate turnover. However, such exclusion of expenditure incurred as

To exclude value of expenditure incurred from taxable supply, the following conditions must be present:

• The supplier acts as a pure agent of the recipient of the supply when he makes payment to the third party on authorization by such recipient.
• The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service.
• The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

CONCEPT OF INTERMEDIARY UNDER GST

In terms of provisions of Section 2(13) of the IGST Act, 2017, “Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.

The following aspects need to be noted:

1.  An intermediary arranges or facilitates supply of goods or services or both, or securities between two more persons. For e.g.: Travel Agent
2. Two supplies are generally involved:

• Supply between the principal and the third party; and
• Supply of his own service to his principal – generally for a fee or commission;

3. An intermediary cannot alter the nature or value of supply, which he facilitates on behalf of his principal;
4. The consideration for an intermediary’s supply is separately identifiable from the main supply that he is arranging and is in the nature of fee or commission charged by him;
5. The test of agency must be satisfied between the principal and the agent i.e. the intermediary;

 

In simple words, an intermediary is like a broker, acting as an agent for parties who wish to buy or sell stocks, bonds, real or personal property, commodities, or services. A distinguishing feature between an agent and a broker is that a broker acts as a middleman. The GST Act clubs all intermediaries as ‘agents’ who carries on the business of supply or receipt of goods and/or services on behalf of another and clubs these entities together with commission agents, brokers, etc.

Registration for an intermediary:

Sec 24 (vii) states , persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise, have to mandatorily take registration irrespective of their amount of turnover.

As per the above provision, threshold limit of Rs.20 lakh (Rs.10 lakh in specific states) is not applicable for intermediaries.

Place of Supply

For intermediary services i.e. a broker, an agent or any other person, by whatever name called, who arranges/facilitates the supply of a service or the supply of goods, between two or more persons, place of supply is - Location of the service provider.

Valuation of service involving intermediaries:

As per Sec 15 (2) of CGST Act, the value of supply shall include incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.

Thus as per the above provision, amount of commission will be added to the price of goods/service in order to arrive at the taxable value. GST will be charged on the consolidated value.

Treatment of commission income of the intermediary

An intermediary shall charge commission from the principal for the services rendered on his behalf.  The commission will be subject to GST.

For eg – Mr A is an intermediary, registered under GST, and charges commission from the principal for the supply of services on behalf of the principal. In that case, Mr A will have to make a tax invoice in the name of the principal at the end of every month and charge GST. 

If in a particular month total value sale is Rs. 2,00,000/- and Mr A’s sharing with the main principal is in the ratio - 80 : 20, then Mr A will get commission of Rs. 40,000/- plus GST @ 18%. Invoice will be raised for Rs.40,000/- plus GST @ 18%.

Conclusion:- Agents & Intermediaries are required to take registration irrespective of the turnover as per section 24.

But this really needs details discussion who all are covered.

As per My opinion, Agents covered only Pure agents and Intermediaries who are acting on behalf of main supplier, means there should be Principal-Agent relationship should exist. Agent covered are like Clearing & Forwarding, Consignment sales agent, Super Stockist, Agency Business or where there is proper agreement to define the relationship between principal and agent.

Other views are solicited.

You may also read attached GST authorized JIO GST article on the same topic.

Best Regards,

CA Ayush Agrawal

reach to me over gmail or Hangout for instant reply.