Service tax implications

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 October 2012 Company A provided the software development services to some foreign party. and Company B has brought this work for Company A and charged commission for that.

What are the implications ? Means service Tax is applicable on such commission or not ?

Querist : Anonymous

Querist : Anonymous (Querist)

13 October 2012 No responses ? Does anyone have no idea about this ?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
Follow

24 July 2025 Here's the service tax implication for the scenario where Company A provides software development services to a foreign party, and Company B acts as an intermediary/commission agent:

1. Company A (Service Provider to Foreign Party)
Export of services is exempt from service tax, provided:

The supplier of service is located in India.

The recipient of service is located outside India.

The place of provision of service is outside India.

The payment for such service has been received in convertible foreign exchange OR in Indian rupees wherever permitted by RBI.

Software development services provided to a foreign client qualify as export of service.

Therefore, Company A’s service to the foreign party is exempt from service tax, subject to conditions mentioned above.

2. Company B (Commission agent to Company A)
Company B is providing services to Company A (an Indian entity).

Commission charged by Company B to Company A is a taxable service under "Business Auxiliary Services" or "Commissioning and Brokerage Services".

Therefore, Company B must charge service tax on the commission charged to Company A (at applicable rates).

Company B will have to pay service tax on this commission to the government.

3. Summary
Party Activity Service Tax Applicability
Company A Software development to foreign party Export service – Exempt from service tax
Company B Commission charged to Company A Taxable service – Service tax applicable on commission

4. Additional points
Company B should also issue a proper tax invoice mentioning service tax on commission.

Company A can avail CENVAT credit on service tax paid on commission (subject to usual conditions).

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now