A simplified GST guide designed for commission agents and brokers.

[Ishita Ramani]

Introduction

In India's history, the Goods and Services Tax is a revolution. It has several aspects, and one of the most common ones is whether commission and brokerage are subject to the tax. In general, commission is the money that a person gets paid to handle a transaction between two parties and obtain a portion of the sale's proceeds. GST registration is essential for all commissions and brokers, regardless of the taxpayer's annual turnover restrictions. This article will guide you in learning more about GST for commission agents and brokers.

Under the GST, who qualifies as a broker or commission agent?

According to the GST law, an individual who conducts the business of providing goods or services on behalf of another individual is called an agent. Instance agents include brokers, commission agents, factoring companies, auctioneers, and mercantile agents. Under the principal-agent relationship, he performs specific tasks.

GST applies to commission agents or  brokers

Brokers and commission agents are subject to GST under Section 7 of the CGST Act when they "provide goods, by a principal to his agent or by an agent to his principal, where the agency supplies such goods on behalf of the principal."

Registering for GST as a Broker or Commission Agent

Anyone who fits the agent criteria must register for GST. Commission agents are exempt from the restriction imposed by the registration threshold limit. Therefore, if a person fits the description of an agent given above, they are required to register. If a person makes a taxable supply in India, they can register as a Non-Resident Taxable Person (NRTP).

According to the CGST rate

• Service providers can access the composition scheme. (Previously, it was restricted to product suppliers.)
• composition plans are available to brokers and commission agents with annual sales up to Rs. 50 lakh.
• Composition programs are a cost- and time-effective option for small taxpayers.
• if the place of supply is outside of India and the reverse charge does not apply to Indian exporters, an Indian exporter who pays a commission to a foreign commission agent (FCA) is exempt from GST. 

Requirements for Brokers or Commission Agents in Invoicing

1. Basic prerequisites: To carry out its services, an agent needs to provide a tax invoice. An agent may issue a Bill of Supply for supplies that are exempt from duty. Under the turnover restrictions, the SAC code must appear on the tax invoice:

• Mandatory for B2B tax invoices up to Rs 5 crore (four-digit)
• Optional for B2C tax invoices up to Rs 5 crore—four digits.
• A six-digit number is necessary for B2B tax invoices that are valued at more than Rs 5 crore.

2. Requirements for e-Way Bills: A pure agent who also works as a transporter is required to create e-way bills if the consignor or consignee fails to produce e-invoices.

3. Requirements for e-Invoicing: In any fiscal year (FY), if the yearly turnover exceeds the specified threshold limit, the agent must utilize the e-invoicing system.

For commission agents and brokers, what does supply mean?

The following cases have different values used to calculate GST for an agent:

Rule 29 (As a Sole Agent): A supply made in the capacity of a sole agent has the following value:

The price that the recipient charges his customer (who is not a related person) for the supply of equivalent goods, where the items are meant for the recipient's continuous supply, is 90% of the open market value of the goods supplied.

Rule 33 (As a Pure Agent): A pure agent is a person who supplies a good or service to the recipient, pays for additional services on the recipient's behalf and then files a claim for reimbursement without raising the cost or value of the supply. In this instance, the relationship between the service provider and the service recipient is principal-to-principal. It is, nevertheless, that of a pure agent for extra services. Expenses incurred as a pure agent are excluded from the supply value under the GST Valuation Rules.

GST Rates for Brokers and Commission Agents

GST is applied at an 18% rate to the taxable value of any supply supplied by an agency, including the sale or purchase of advertising space or time. Some of the services are provided on a contract basis or for a fee or commission, including the following:

• any kind of service offered to the retail or wholesale market.
• Services for property management are offered.
• real estate evaluation services.
• In wholesale commercial agreements, commission agent services are provided for contract discussions.
• sale of land or buildings.

In general, GST must be paid by a supplier of goods or services. Under a reverse charge system, the recipient of goods or services may be required to pay GST in certain conditions. Reverse-charge mechanisms apply to the following individuals:

• Financial Institutions
• Banks

As a commission agent or broker, the GST environment defines various tax requirements, such as quarterly GST returns, annual GST returns, and filings. These responsibilities are essential to guarantee smooth operations within the framework of tax laws and to preserve compliance with GST standards. It is crucial to comprehend the nuances of these regulations to manage tax obligations and prevent penalties.

Conclusion:

Regardless of the taxpayer's turnover limitations, all commission and brokerage income is subject to registration under the GST. The threshold restriction on the registration requirement does not apply to commission agents. As a result, upon fulfilling the requirements defined in this article to be classified as an agent, an individual must obtain an obligatory registration. In India, an individual can register as an NRTP (Non-Resident Taxable Person) if they make taxable supplies. 

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