Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: due date for vat payment :: TDS :: Central Excise rule to resale the machines to a new company :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARD :: VAT Audit :: articles on VAT and GST in India :: list of goods taxed at 4% :: form 3cd :: VAT RATES :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: cpt :: ACCOUNTING STANDARDS
« News Headlines »
 5 Tax tasks you should complete before March 31
 March 31 deadline nears: Check out these last-minute tax-saving investment options
 How to file income tax returns online without having Form 16 in 10 simple steps
 Deadline For Filing Income Tax Return (ITR) Is Just 11 Days Away: 10 Latest Details To Know
  10 incomes you need not pay any tax on
 How To File Income Tax Returns In Three Steps By March 31, 2018
 10 things about income tax every taxpayer should know
 What to do if your TDS is not deposited with the government
 What if you forget to verify your Income Tax return?
 TDS on rent and other tax tasks to complete before March 31
 5 income tax changes which will come into effect from April 1, 2018

The travails of commission agents
October, 20th 2007
Since agents are not liable to pay service tax on their output services, the input tax is a cost, as there is no set-off available to them.

Isnt the threshold exemption for payment of service tax Rs 8 lakh? Well, not exactly if you are an insurance or mutual fund agent. If you are such an agent, tax is payable on every rupee of the commission income earned, albeit indirectly, as the person paying the commission would be paying service tax on your behalf to the government and only the balance is paid as commission.

It appears that the Government, in its anxiety to spare the small agents the hassles of paying service tax or, more importantly, to save itself the bother of collecting service tax from numerous agents, not all of whom generate commission revenues in excess of Rs 8 lakh, has inadvertently committed this faux pas.

Agents of general insurance business were brought into the service-tax fold with effect from July 16, 2001, and this was extended to life insurance business from August 16, 2002. An insurance agent is generally tied to a specific insurance company and is employed to solicit insurance business. He interacts with prospective customers and the insurance company and helps customers in filling up the forms, choosing the right cover and completing various other formalities.

Raw deal

Mutual fund agents, on the other hand, were indirectly brought into the fold through Business Auxiliary Service in July 2003. The Government has clarified that the services provided by these agents are covered either as provision or marketing of services on behalf of the client or as commission agent, if not both.

Since the agent markets the offerings and receives commission for the mutual funds purchased by the investors, the departments position appears fair. However, small and marginal players, by perhaps an unwitting provision in law, seem to have got a raw deal. The commission income earned by an insurance agent, mutual fund distributor or a mutual fund agent is chargeable to service tax and there is no escaping this.

A lot of hardship could have been avoided if the law was not tinkered with. An agent, whether of an insurance company or mutual fund, would be liable to pay service-tax if his income crosses the threshold level and not otherwise.However, in terms of Rule 2 (1)(d)(iii) and (vi) of Service Tax Rules 1994, liability to pay the tax has been cast on the recipient of the service.

In other words, insurance companies and mutual funds are liable to pay service tax on the commission paid to these agents, as they are the recipients of the service.

As required by the law, insurance companies, being liable to pay service tax, deduct the tax from the commission payable to the agents and remit the same to the Government. And the service tax so paid can be set off against the service tax payable by them on their services, insurance policies, etc., and, therefore, it is revenue-neutral to such insurance companies.

No set-off

Both the insurance and mutual fund sectors employ thousands of agents, most of whom are small players. The income from this activity seldom touches Rs 8 lakh, which is the threshold limit for service tax liability. If the Government had made service providers liable to service tax, most of them would not have been liable to the tax in view of threshold limit. This apart, the agents utilise various services on which they pay service tax. Since the agents are not liable to pay service tax on their output services, the input tax is a cost, as there is no set off available to them.

On the one hand, they pay tax through their principals, which they would not have paid because of the threshold limit and, on the other hand, they have to bear the burden of service tax on their input services which they could have utilised if they were paying the service tax.

It is reported that insurance companies plan to approach the Finance Ministry for tax exemption on the service tax paid on agent commission. However, this fundamental problem has arisen because the Government, either unwittingly or wittingly, has caused this problem and it can be rectified in the forthcoming Budget by removing these agents from the purview of Rule 2(1)(d)(iv) of the Service Tax Rules.

If, however, the Governments intention is to tax these commission incomes right from the first rupee earned, then certainly grave injustice is being done to the small and marginal players. This problem also stems from the fact that these agents are not well organised and their business is spread across the country.

There is no effective lobby to represent them and their travails are not heard in the din of big players seeking concessions. The total revenue garnered by the government from this tax is estimated at Rs 1,000 crore. Considering the fiscal constraints, whether the Government will bite the bullet remains to be seen.

D. Arvind
J. V. Niranjan

(The authors are Partner and Senior Manager, respectively, BSR & Co.)

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - About Us

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions