GST on Commission: Everything You Need to Know

The Goods and Services Tax (GST) regime has brought significant changes to the taxation structure in India, impacting various sectors, including commissions. This blog delves into GST on commissions, explaining applicable rates, HSN codes, and specific scenarios involving different types of commissions.

GST on Commission: HSN Code and Rates

The GST on commission services generally falls under HSN Code 9971 (Financial and related services). The applicable GST rates are:

• 18% GST for most commission services.
• Specific exemptions may apply based on the nature of the service (e.g., certain agricultural-related commissions).

Types of Commission and GST Applicability

1. GST on Mutual Fund Commission

• Mutual fund distributors or agents are subject to 18% GST on the commission they receive.
• If the commission exceeds the GST threshold limit, the distributor or agent must register under GST.

2. GST on Commission Paid to Foreign Agents

• When a company in India pays a commission to a foreign agent, it falls under the Reverse Charge Mechanism (RCM).
• The payer (Indian company) is liable to pay GST at 18% under RCM.

3. GST on Commission Received from Foreign Company

• If the commission is earned from a foreign company and the place of supply is outside India, it is considered an export of service and may be zero-rated under GST.

4. GST on Commission Paid

• Any commission paid, whether to agents, brokers, or distributors, is subject to GST at 18%.

5. GST on Sales Commission Paid to Unregistered Person

• GST is applicable even if the recipient of the commission is unregistered. The payer must account for GST under RCM if the commission is paid to an unregistered person.

6. GST on Sub-Broker Commission

• Sub-brokers earning commissions from brokers must pay 18% GST, provided they exceed the threshold turnover limit.

7. GST on LIC Commission and Insurance Commission Received

• LIC agents and other insurance agents are liable for 18% GST on commissions earned. Typically, insurance companies pay GST under RCM.

8. GST on Real Estate Broker Commission

• Real estate brokers or agents must charge 18% GST on the commission they receive for facilitating property transactions.

9. GST on Chit Fund and Foreman Commission

• Chit fund foremen must pay 18% GST on the commission earned from managing the chit fund.

10. GST on Agriculture Commission Agents

• GST is not applicable on the commission earned by agents dealing in agricultural produce, as these services are exempt under GST.

11. GST on Mutual Fund Distributor Commission

• Mutual fund distributors earning commission must pay 18% GST if their turnover exceeds the exemption limit.

Thresholds and Exemptions

• GST on Commission Income Limit: The threshold limit for GST registration is Rs. 20 lakh (Rs. 10 lakh for special category states).
• Exemptions: Certain commissions, such as those for agricultural produce, are exempt from GST.

GST Compliance for Commission Agents

1. Registration: Commission agents earning above the GST threshold must register under GST.
2. Invoices: Issue GST-compliant invoices with correct HSN codes and GST rates.
3. Reverse Charge Mechanism (RCM): Understand and apply RCM where required, especially for foreign agent commissions.
4. GST Filing: File accurate GST returns to avoid penalties.

Frequently Asked Questions (FAQs)

1. What is the GST rate on broker commission? The GST rate on broker commission, including real estate brokers and sub-brokers, is 18%.

2. Is GST applicable on commission received from outside India? If the commission qualifies as an export of service, it may be zero-rated under GST, provided all conditions are met.

3. How is GST applied to LIC agents? LIC agents are liable for 18% GST on commissions, usually paid by the insurance company under RCM.

4. Are agricultural commission agents exempt from GST? Yes, commission agents dealing in agricultural produce are exempt from GST.

5. Is GST applicable on mutual fund distributor commissions? Yes, GST at 18% applies to mutual fund distributor commissions if they exceed the turnover threshold.

Conclusion

GST on commissions varies based on the type of service and the parties involved. It is crucial for agents, brokers, and distributors to understand the applicable GST rates, HSN codes, and compliance requirements to avoid penalties. From real estate brokers to mutual fund agents and insurance commission earners, staying informed is the key to seamless operations under the GST regime. If you have any queries, feel free to leave a comment below!

Key sections and rules related to GST on commission:

1. Section 7 of the CGST Act: This section, read with Schedule I, specifies that the 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.
2. Section 23 of the CGST Act: This section provides exemptions from GST registration for certain categories, including commission agents dealing in agricultural produce.
3. Rule 56(14) of the CGST Rules: This rule mandates that agents maintain detailed accounts of the goods or services they handle on behalf of their principals.
4. Rule 32(5) of the CGST Rules: This rule provides a special valuation method for agents, allowing them to pay GST on the difference between the sale price and the purchase price of goods.