GST on Commission in India

Introduction

Commission and brokerage arrangements are an integral part of modern trade and commerce in India. From real estate brokers and insurance agents to export facilitators and marketing representatives, intermediaries play a crucial role in connecting buyers and sellers and enabling smooth business transactions. However, with the implementation of the Goods and Services Tax (GST) regime, the taxation of commission-based earnings has become a significant compliance area for professionals and businesses alike.

Understanding the applicability of GST on commission, the obligations of commission agents, the applicable tax rates, invoicing rules, and input tax credit provisions is essential to avoid penalties and ensure seamless operations. Whether you are an individual earning commission income or a business engaging agents for expansion, clarity on GST provisions can help you remain compliant and financially efficient.

In this article, we provide a detailed explanation of GST on commission and brokerage in India, covering legal definitions, registration requirements, tax rates, reverse charge implications, and practical compliance aspects for commission agents and businesses.

Understanding Commission Under GST

Many taxpayers often ask: is GST applicable on commission?

Yes. Under the GST regime, commission and brokerage are treated as taxable supplies of services. Therefore, GST on commission income is applicable when a person earns consideration for facilitating the supply of goods or services between two or more parties.

In simple terms, if you earn a fee for arranging or promoting a transaction, commission income GST provisions will apply.

Who is a commission agent under GST?

The term “commission agent” under GST is derived from Section 2(5) of the CGST Act, 2017. An “agent” includes brokers, factors, commission agents, auctioneers, arhatias, del credere agents, or any mercantile agent who supplies or receives goods or services on behalf of another person (the principal).

A key aspect in determining whether someone qualifies as an agent is the principal-agent relationship. The crucial test is:

• If the invoice is issued in the agent’s own name, the transaction may fall under Schedule I and be taxable even without consideration.
• If the invoice is issued in the principal’s name, it generally does not fall under Schedule I.

Understanding this distinction is vital for proper GST treatment. Professional advisory platforms like TMWala can help evaluate whether your business structure creates a principal-agent relationship and ensure correct compliance.

GST on Commission Agents

GST on commission agents applies to individuals or entities facilitating transactions on behalf of principals. Since these services qualify as supply under GST law, they attract GST at the applicable rate.

Agents must:

• Register under GST (subject to specific provisions applicable to agents)
• Issue tax invoices for taxable supplies
• Maintain proper documentation
• File periodic GST returns

When in doubt regarding registration or compliance, expert guidance from TMWala can simplify the process and prevent errors.

GST Registration for Commission Agents

There is often confusion about GST registration for commission agents. Commission agents may be required to register under GST depending on the nature of their activities and statutory provisions. In cases involving taxable interstate supplies or agency relationships covered under Schedule I, registration requirements may arise irrespective of turnover thresholds.

Because registration rules can vary depending on the business model, seeking professional consultation from TMWala ensures proper evaluation and timely registration.

GST Rate on Commission and Brokerage

The GST rate on commission generally falls under the standard GST rate applicable to services.

Similarly, the GST rate on commission and brokerage is typically 18% (9% CGST + 9% SGST or 18% IGST, as applicable), unless specifically exempted.

Since brokerage and commission services are categorized as business auxiliary or intermediary services, they attract GST at this standard rate.

SAC Code for Commission Agent

Every commission agent must mention the appropriate SAC code for commission agent on the tax invoice. The Service Accounting Code (SAC) identifies the type of service provided.

SAC Code Disclosure Requirements:

• Turnover up to ₹5 crore:
  • B2B invoices: 4-digit SAC mandatory
  • B2C invoices: 4-digit SAC optional
• Turnover above ₹5 crore:
  • B2B invoices: 6-digit SAC mandatory

Correct classification is essential for compliance and return filing accuracy.

Intermediary Services Under GST

The concept of intermediary services under GST is defined under Section 2(13) of the IGST Act. An intermediary is a broker, agent, or any person who arranges or facilitates the supply of goods or services between two or more parties but does not supply such goods or services on their own account.

A significant point regarding intermediary services is the place of supply. Under GST, the place of supply for intermediary services is generally the location of the service provider. This provision has been retained from the earlier service tax regime.

GST on Commission Under Reverse Charge

Another common query is regarding GST on commission reverse charge.

In certain notified categories, GST may be payable under the Reverse Charge Mechanism (RCM). However, when an Indian exporter pays commission to a foreign commission agent (FCA), GST is not payable in India because:

• The place of supply is outside India.
• Reverse charge provisions do not apply to such export commission arrangements.

This makes export commission payments to foreign agents outside the GST levy in India, subject to proper documentation and compliance.

Invoicing Requirements for Commission Agents

Commission agents must:

• Issue a Tax Invoice for taxable services
• Issue a Bill of Supply if providing exempt services
• Mention SAC code as per turnover limits
• Charge applicable GST rate

Accurate invoicing ensures seamless Input Tax Credit (ITC) flow and avoids compliance issues.

Input Tax Credit on Commission Services

Commission agents charging GST can claim Input Tax Credit (ITC) on business-related purchases, subject to GST provisions. Similarly, businesses paying commission can claim ITC on GST charged by agents, provided all conditions under the CGST Act are fulfilled.

Proper documentation and reconciliation are essential to claim ITC smoothly. Professional compliance support from TMWala can help businesses manage documentation, filings, and credit reconciliation effectively.

Conclusion

GST has brought commission and brokerage services clearly within the tax framework, making compliance essential for agents, intermediaries, and businesses engaging their services. Since commission is treated as a taxable supply of services, individuals earning such income must carefully evaluate registration requirements, apply the correct GST rate, issue proper invoices with the appropriate SAC code, and comply with return filing obligations.

Understanding the distinction between principal and agent, the applicability of Schedule I provisions, the concept of intermediary services, and the implication of reverse charge is crucial to avoid litigation and penalties. Additionally, proper invoicing and documentation play a key role in ensuring seamless Input Tax Credit (ITC) claims for both commission agents and the businesses paying commission.

Given the technical nature of GST provisions and frequent updates in compliance requirements, professional guidance can make a significant difference. TMWala can assist commission agents and businesses with GST registration, advisory on principal-agent relationships, tax rate applicability, return filing, documentation management, and overall compliance support.

In short, staying informed and proactive about GST on commission ensures not only legal compliance but also smoother business operations and better financial planning.

Important FAQs:

1. Is GST applicable on commission income?
   Yes, GST is applicable on commission and brokerage, as they are treated as taxable supplies of services under GST law.
2. What is the GST rate on commission and brokerage?
   The GST rate on commission and brokerage is generally 18% (9% CGST + 9% SGST or 18% IGST), unless specifically exempted.
3. Who is considered a commission agent under GST?
   A commission agent under GST is a person who supplies or receives goods or services on behalf of a principal, including brokers, auctioneers, arhatias, and other mercantile agents.
4. Is GST registration mandatory for commission agents?
   GST registration for commission agents may be required depending on the nature of their activities, interstate supplies, and statutory provisions, even in certain cases irrespective of turnover.
5. What is the SAC code requirement for commission agents?
   Commission agents must mention the SAC code on invoices.
   • Up to ₹5 crore turnover: 4-digit SAC mandatory for B2B
   • Above ₹5 crore turnover: 6-digit SAC mandatory for B2B
6. What are intermediary services under GST?
   Intermediary services under GST refer to services provided by a broker or agent who arranges or facilitates supply between two or more parties but does not supply on their own account.
7. What is the place of supply for intermediary services?
   The place of supply for intermediary services is generally the location of the service provider.
8. Does reverse charge apply on commission payments to foreign agents?
   No. When an Indian exporter pays commission to a foreign commission agent, GST is not payable in India as the place of supply is outside India.
9. What documents must a commission agent issue?
   A commission agent must issue a tax invoice for taxable services and a bill of supply for exempt services, along with the applicable SAC code and GST rate.
10. Can Input Tax Credit (ITC) be claimed on commission services?
    Yes. Commission agents can claim ITC on eligible business purchases, and businesses paying commission can claim ITC on GST charged by agents, subject to GST conditions.