Pure agent
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
05 July 2012
After recent changes in service tax, is there any changes in pure agency concept?
if somebody work as an agent any service tax payable on reimbursements.
previsouly it was non taxable.
if somebody work as an agent any service tax payable on reimbursements.
previsouly it was non taxable.
05 July 2012
All the agency/commission services are taxable unless and otherwise it is listed in the negative list. The agency commission is taxable for the service provider. He can avail small scale exemption of 10 lacs.
Querist : Anonymous
Querist :
Anonymous
(Querist)
06 July 2012
Thanks Sir for your reply.
My question was not related to Agency commission. it was related to normal business like TPA where they collect the money from Insurance company and make the payment to insured. they charge service tax on their management fees but they dont charge on hospital reimbursements.
Awaiting reply
My question was not related to Agency commission. it was related to normal business like TPA where they collect the money from Insurance company and make the payment to insured. they charge service tax on their management fees but they dont charge on hospital reimbursements.
Awaiting reply
10 August 2024
The concept of "pure agent" in the context of Service Tax (prior to GST) and now under GST has specific implications for how certain reimbursements are treated. Here’s a detailed look into how this concept has evolved and what it means for service providers:
### **1. **Concept of Pure Agent**
**Pure Agent Definition:**
Under both Service Tax and GST regimes, a "pure agent" is defined as a person who:
- Acts on behalf of another person.
- Does not use the money received for their own benefit but merely passes it on.
- Receives a commission or fee for their service but does not derive any profit from the reimbursement.
**Key Features of a Pure Agent:**
- The agent only facilitates the payment of third-party expenses.
- The reimbursement is passed on directly to the third party without any mark-up or margin.
### **2. **Service Tax (Pre-GST)**
Under the Service Tax regime:
**Pure Agent Exemption:**
- Reimbursements made by a pure agent for expenses incurred on behalf of the principal (e.g., payments to third parties) were generally not subject to Service Tax.
- Service Tax was payable only on the service fee or commission received for acting as an agent.
- To qualify as a pure agent, certain conditions needed to be met:
- The principal should be responsible for the third-party payments.
- The amount reimbursed should not include any additional charges by the agent.
- The reimbursement should be clearly documented and passed on directly to the third party.
### **3. **GST (Post-July 2017)**
Under the GST regime:
**Pure Agent Treatment:**
- The concept of a "pure agent" continues under GST, as outlined in **Section 15(2)(a)** of the CGST Act, 2017.
- **Reimbursements:** As per GST rules, if the agent acts as a pure agent, the amounts reimbursed to the agent for expenses incurred on behalf of the principal are not subject to GST. This is provided the following conditions are met:
- The principal must be responsible for the payment to the third party.
- The agent does not add any profit or markup to the reimbursement.
- The agent must separately indicate the reimbursement in the invoice issued to the principal.
For instance, a Third-Party Administrator (TPA) who collects payments from an insurance company and makes payments to hospitals on behalf of insured individuals can treat these payments as reimbursements, provided:
- They charge GST only on their management fees and not on the amounts paid to hospitals.
**Documentation and Compliance:**
- The transaction should be clearly documented.
- The invoice to the principal should separate the management fee and reimbursements.
- Proper records of the expenses and reimbursements should be maintained.
### **4. **Impact on Normal Business (e.g., TPA)**
In your example:
- **Management Fees:** GST is applicable on management fees charged by the TPA.
- **Reimbursements:** Payments made to hospitals on behalf of the insured (which are pure reimbursements) are not subject to GST. The TPA acts purely as an agent for passing on these amounts without adding any markup.
**To Ensure Compliance:**
1. **Document Clearly:** Clearly distinguish between service fees and reimbursements in all documentation and invoicing.
2. **Maintain Records:** Keep detailed records of transactions, including the amounts reimbursed and the nature of expenses.
3. **Consult GST Experts:** Regularly review GST regulations or consult with a tax advisor to ensure compliance with the latest rules and interpretations.
### **Summary**
- **Pure Agent Concept:** Remains relevant under GST; reimbursements by a pure agent are not subject to GST.
- **Service Fees:** GST applies to the service fees or commissions charged by the agent.
- **Reimbursements:** Amounts reimbursed by the agent (like TPAs paying hospitals) are not taxed under GST, provided the pure agent criteria are met.
Always ensure compliance with the current GST provisions and seek professional advice for specific cases to handle documentation and invoicing accurately.
### **1. **Concept of Pure Agent**
**Pure Agent Definition:**
Under both Service Tax and GST regimes, a "pure agent" is defined as a person who:
- Acts on behalf of another person.
- Does not use the money received for their own benefit but merely passes it on.
- Receives a commission or fee for their service but does not derive any profit from the reimbursement.
**Key Features of a Pure Agent:**
- The agent only facilitates the payment of third-party expenses.
- The reimbursement is passed on directly to the third party without any mark-up or margin.
### **2. **Service Tax (Pre-GST)**
Under the Service Tax regime:
**Pure Agent Exemption:**
- Reimbursements made by a pure agent for expenses incurred on behalf of the principal (e.g., payments to third parties) were generally not subject to Service Tax.
- Service Tax was payable only on the service fee or commission received for acting as an agent.
- To qualify as a pure agent, certain conditions needed to be met:
- The principal should be responsible for the third-party payments.
- The amount reimbursed should not include any additional charges by the agent.
- The reimbursement should be clearly documented and passed on directly to the third party.
### **3. **GST (Post-July 2017)**
Under the GST regime:
**Pure Agent Treatment:**
- The concept of a "pure agent" continues under GST, as outlined in **Section 15(2)(a)** of the CGST Act, 2017.
- **Reimbursements:** As per GST rules, if the agent acts as a pure agent, the amounts reimbursed to the agent for expenses incurred on behalf of the principal are not subject to GST. This is provided the following conditions are met:
- The principal must be responsible for the payment to the third party.
- The agent does not add any profit or markup to the reimbursement.
- The agent must separately indicate the reimbursement in the invoice issued to the principal.
For instance, a Third-Party Administrator (TPA) who collects payments from an insurance company and makes payments to hospitals on behalf of insured individuals can treat these payments as reimbursements, provided:
- They charge GST only on their management fees and not on the amounts paid to hospitals.
**Documentation and Compliance:**
- The transaction should be clearly documented.
- The invoice to the principal should separate the management fee and reimbursements.
- Proper records of the expenses and reimbursements should be maintained.
### **4. **Impact on Normal Business (e.g., TPA)**
In your example:
- **Management Fees:** GST is applicable on management fees charged by the TPA.
- **Reimbursements:** Payments made to hospitals on behalf of the insured (which are pure reimbursements) are not subject to GST. The TPA acts purely as an agent for passing on these amounts without adding any markup.
**To Ensure Compliance:**
1. **Document Clearly:** Clearly distinguish between service fees and reimbursements in all documentation and invoicing.
2. **Maintain Records:** Keep detailed records of transactions, including the amounts reimbursed and the nature of expenses.
3. **Consult GST Experts:** Regularly review GST regulations or consult with a tax advisor to ensure compliance with the latest rules and interpretations.
### **Summary**
- **Pure Agent Concept:** Remains relevant under GST; reimbursements by a pure agent are not subject to GST.
- **Service Fees:** GST applies to the service fees or commissions charged by the agent.
- **Reimbursements:** Amounts reimbursed by the agent (like TPAs paying hospitals) are not taxed under GST, provided the pure agent criteria are met.
Always ensure compliance with the current GST provisions and seek professional advice for specific cases to handle documentation and invoicing accurately.
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