A broker or commission agent acts as an intermediary, facilitating transactions between buyers and sellers in exchange for a fee known as a commission or brokerage. Common examples include:
- Insurance brokers who help clients find suitable insurance policies
- Real estate agents who assist in property sales and rentals
- Stockbrokers who execute trades on behalf of investors
Under the GST regime, the services provided by brokers and commission agents are taxable as a supply of service. The commission or brokerage earned is subject to GST, which the broker or agent must charge and remit to the government.
Prior to the introduction of GST, these services were subject to service tax at a rate of 15%. However, from July 1, 2017, GST subsumed various indirect taxes, including service tax, VAT, and excise duty, bringing commission and brokerage services under its ambit.
Who is a Broker and Commission Agent Under GST?
An agent is defined under the GST law as a person who carries on the business of supply of goods or services on behalf of another person (principal). An agent includes a broker, commission agent, factor, auctioneer, or a mercantile agent. He carries out activities under the principal-agent relationship.
Applicability of GST for Brokers and Commission Agents
As per Section 7 of the CGST Act read with the Schedule I, ‘Supply of goods, by a principal to his agent or by an agent to his principal, where the agent supplies such goods on behalf of the principal’ is chargeable to GST even if made without consideration, but for conducting business.
The definition of an agent, as discussed above, includes ‘supply or receipt of goods on behalf of the principal’. Thus, a principal-agent relationship is an essential factor for determining whether a transaction is covered under the definition of an agent.
For this, it is essential to understand whether the agent is carrying out the activity as a representative, i.e. ‘supplying or receiving the goods on behalf of the principal.’ The key criteria for determining the existence of a principal-agent relationship is ‘how an invoice is raised?’.
- If an invoice is raised in his name (agent’s name) – It would be covered under Schedule I transactions and thus liable to GST.
- If an invoice is raised in the name of principal – Not covered under Schedule I.
GST applies to brokers and commission agents whose annual turnover from taxable supplies exceeds the threshold limit. The current threshold for GST registration is:
- Rs. 20 lakhs for most states
- Rs. 10 lakhs for North Eastern and hill states
If your turnover crosses the applicable threshold, you must register under GST and charge GST on your commission or brokerage income. If your turnover is below the threshold, GST registration is optional.
However, it’s important to note that even if you are not registered under GST, you may still be liable to pay GST under the reverse charge mechanism (RCM) in certain cases.
Comparison of taxes before and after GST
How a commission agent was charged to tax earlier under the Service tax regime and now under GST with the help of an example.
Consider Mr Rahul; a commission agent charges Rs.5,000 as his service charge within India.
| Particulars | Taxed Under Service Tax Regime (Rs) | Taxed Under GST (Rs) |
| Value of taxable supplies | 5,000 | 5,000 |
| Service tax @ 15% | 750 | – |
| CGST @ 9% | – | 450 |
| SGST @ 9% | – | 450 |
| Total GST | – | 900 |
| Invoice Value | 5,750 | 5,900 |
Thus, the introduction of GST has increased the tax burden on brokers and commission agents.
GST Rates for Commission Agents and Brokers
GST at 18% is applicable on the taxable value of supply provided by a commission agent or broker, including the sale/purchase of advertising space/time. Following are some of the services provided for a fee/commission or on a contract basis:
- Sale of land/building.
- Any retail/wholesale trade service.
- Property management service.
- Real estate appraisal service.
- Commission agent services to negotiate wholesale commercial transactions.
Usually, a supplier of goods/services is required to pay GST. But, in some cases, a recipient of goods/services is required to pay GST called a reverse charge mechanism. Services provided by a broker or a commission agent to the following individuals are covered under reverse charge mechanism:
- Banks
- Financial institutions
Invoicing Requirements for Brokers and Commission Agents
Basic requirements: An agent is required to issue a tax invoice for the supply of its services. In the case of exempt supplies, he can issue a Bill of Supply. Further, the SAC code should be mentioned on the tax invoice as per the turnover limits:
- Up to Rs 5 crore – Mandatory for B2B tax invoices – Four digits
- Up to Rs 5 crore – Optional for B2C tax invoices – Four digits
- Greater than Rs 5 crore – Mandatory for B2B tax invoices – Six digits
e-Way Bill Requirements: A pure agent is required to generate e-way bills if he is also working as a transporter, and the consignor/consignee does not generate the e-way invoice.
e-Invoicing Requirement: If the agent is earning more than the threshold limit notified, as annual turnover in any FY from FY 2022-23, then he/she must comply with the e-invoicing system.
FAQs
Q1. What is the Value of Supply for Brokers and Commission Agents?
Sole Agent (Rule 29): In case of supply made as a sole agent, the value of supply shall be:
- The open market value of goods supplied
- 90% of the price charged for the supply of goods of a similar kind by the recipient to his customer (not being a related person) where the goods are intended for further supply by the recipient;
Pure Agent (Rule 33): A pure agent is one who makes a supply to the recipient and also incurs expenditure on behalf of the recipient for other ancillary services and claims reimbursement of the same without adding it to the value of his supply. Here, the relationship between the service provider and service recipient is on a principal to principal basis. But, for ancillary services, it is that of a pure agent. As per the Valuation Rules of GST, expenditure incurred as a pure agent will be excluded from the value of supply.
Q2. Can Input Tax Credit (ITC) Be Claimed by Commission Agents and Brokers?
Yes, input tax credit (ITC) can be claimed by commission agents and brokers on the GST paid on the inputs and input services used by them to render their output services. This includes expenses such as office overheads, office supplies, etc.
Q3. GST Compliance for Brokers and Commission Agents?
Forms and Returns: A registered broker and a commission agent are required to file the below returns:
- GSTR-3B – Monthly summary return.
- GSTR-1 – Return for reporting outward supplies.
- GSTR-9 – Annual return.
- GSTR-5 and GSTR-5A – Non-resident foreign taxpayers.
Maintenance of Accounts: All agents are required to maintain accounts showing the particulars of:
- Authorisation from principal to supply/receive goods on his behalf.
- Quantity and value of goods/services received on behalf of the principal.
- Details of accounts furnished to the principal.
- Taxes paid on supply/receipt of goods/services on behalf of the principal.
Q4. What is the GST code for brokerage services?
The GST service accounting code (SAC) for brokerage services is 997159, which falls under the category of “Other supporting services n.e.c.”
Q5. What is the GST limit for brokerage?
The GST limit for brokerage is the same as the general registration threshold, i.e., ₹20 lakhs (₹10 lakhs for special category states) in a financial year. If your aggregate turnover from brokerage services exceeds this limit, you must register under GST.
Q6. Do I need GST registration if I only work part-time as a broker?
If your aggregate turnover from brokerage services exceeds the threshold limit of ₹20 lakhs (₹10 lakhs for special category states) in a financial year, you are required to obtain GST registration, regardless of whether you work part-time or full-time.
Q7. Is GST on brokerage claimable?
Yes, ITC can be claimed on the GST amount paid on brokerage if the same is incurred for business purposes and all the conditions and requirements under the GST law are met.
Q8. Is GST applicable to all types of brokerage services?
Yes, GST is applicable to commission paid and brokerage fees, with a few exceptions as follows-
- Services by fair price shops:
- To the Central Government on sale of rice, wheat, and other coarse grains.
- To the state government or Union Territories on sale of kerosene, sugar, edible oil, etc.
- Support services to agriculture, forestry, fishing, and animal husbandry.
- Services under cultivation of plants and rearing of all lifestock (except horses), such as:
- Direct agricultural operations
- Farm labour supply services
- Certain agricultural processes like tending, pruning, cutting, harvesting, drying, sun drying, etc.
- Renting/leasing of agro machinery or a vacant land
- Warehousing and storage activities of agricultural produce
- Extended agricultural service
- Services provided by an Agricultural Produce Marketing Committee
