Service tax on commission
Querist : Anonymous
OUR COMPANY MAKES PAYMENTS OF COMMISSION ON EXPORTS SALE @ 4% TO FOREIGN COMPANY WHOSE PERMANENT ESTABLISHMENT IS NOT IN INDIA. WHETHER OUR COMPANY IS LIABLE TO PAY SERVICE TAX?
PLEASE REPLY.
Querist : Anonymous
---
### Key Points:
1. **Service Tax is applicable on services provided in India or received in India (under reverse charge).**
2. **Commission paid to a foreign company outside India, which has no Permanent Establishment (PE) in India, is considered as service provided outside India.**
3. According to the **Service Tax laws and Place of Provision of Services Rules**, if the service provider is located outside India and the service is also performed outside India, then service tax does **not apply**.
4. Since the foreign company has **no PE in India**, the commission payment is considered as payment for services rendered outside India.
5. Therefore, your company **does not have to pay service tax on such commission payments**.
---
### Supporting Legal Basis:
* **Section 66A of the Finance Act, 1994** and the **Place of Provision of Services Rules, 2012** provide that service tax is chargeable only when the place of provision of service is in India.
* **CBDT Circular No. 7/2009** and various Supreme Court rulings (such as **CIT v Toshoku Ltd** \[125 ITR 525]) confirm that income or service fees paid to non-residents for services rendered outside India are not taxable under Indian laws.
* **Reverse charge mechanism** applies when services are received in India from a foreign service provider having no PE in India only if place of provision is in India, which is not the case here.
---
### Summary:
| Situation | Service Tax Applicability |
| ----------------------------------------------------------------------------------------------------- | ------------------------------------------------- |
| Commission paid to foreign company without PE in India for services rendered outside India | **No service tax payable** |
| Commission paid to Indian resident or foreign company with PE in India for services rendered in India | Service tax applicable (normal or reverse charge) |
---
If you want, I can help you draft a formal note or justification based on this for your internal records or tax authorities. Would you like that?
Click here to login now
Similar Resolved Queries
- GSTR9- ITC
- Audit of F and O T/O
- REVENUE RECOGNITION AS PER IND AS 115
- GST 9- Table 8
- How to update Transaction data in broker samco account holding after transfer shares KARVY
- Applicablity on tds
- Unable to generate and save json file for updated return
- GST payable under RCM
- LTCG offset against property buy
- WRONGLY UPLOADED 10IF FOR COOPERATIVE SOCIETY
- Related to Rate of Depreciation
- Mismatch of Sales Invoice in GSTR-1
- Query on Mismatch of Sales Invoice in GSTR-1
- Itr not filed and intimation for demand
- RCM on GTA Services
- Import purchase entry
- Rule 54(1A) for Distributing ITC
- EXCESS CREDIT REALTED GST REVERSAL
- Export invoice not reported
- CA Articleship Extension Matter
Trending Online Classes
-
LIVE Course on GSTR-9 & GSTR-9C (Technical | Practical | Concept - Based)
Sachin Jain03 November 2025
CAclubindia
