Service tax on overriding commission

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Querist : Anonymous

Querist : Anonymous (Querist)

17 April 2012 if an indian company promotes sales of products of foreign principals in india,then whether commission received from foreign principals in foreign currency is taxable in india.is service tax applicable on such a commission income ?

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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17 April 2012 Dear Author,
It can not be said as export of service and service tax will be applicable under "business Auxiliary Services".

Querist : Anonymous

Querist : Anonymous (Querist)

17 April 2012 But as per point of taxation rules,business auxiliary services falls under services on the basis of location of the recipient,,,,in that case it should be treated as an export of services as the recipient is located abroad..../???///?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Great question! Here’s the detailed take on **service tax on overriding commission received by an Indian company from foreign principals:**

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### Scenario:

* Indian company promotes sales of foreign principal’s products in India.
* Commission is received from the foreign principal **in foreign currency**.
* Question: Is service tax payable on such commission income in India?

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### Key Points:

#### 1. **Nature of Service: Business Auxiliary Service**

* The commission received for promoting or marketing products is generally classified as **Business Auxiliary Services (BAS)** under service tax.
* BAS includes services such as promotion, marketing, sales support, etc.

#### 2. **Export of Services & Place of Supply Rules (Point of Taxation Rules)**

* According to **Point of Taxation Rules (2011)** and service tax law, a service qualifies as **export of service** if:

* 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.
* Payment is received in convertible foreign exchange.
* The supplier and recipient are not related persons.

* For BAS, **place of provision is the location of the recipient of service**.

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### Applying to Your Case:

* If the **foreign principal (recipient) is located outside India** and you receive commission in foreign currency, **this is an export of service**.
* Export of services is **zero-rated** under service tax, meaning **no service tax is payable**, but you can claim refund of input tax credit.

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### Common Confusion:

* While BAS is taxable in India when provided within India, **when provided to a foreign principal located outside India, and payment is in foreign currency, it qualifies as export of services**.
* Therefore, service tax is **not applicable** on commission income from foreign principal under export of services rules.

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### Summary:

| Aspect | Position |
| --------------------------- | ---------------------------------------------------- |
| Service Type | Business Auxiliary Services |
| Recipient Location | Outside India (Foreign Principal) |
| Payment in Foreign Currency | Yes |
| Service Tax Applicability | **No**, qualifies as export of services (zero-rated) |
| Benefit | Input tax credit refundable on inputs used |

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### Recommendation:

* Ensure proper documentation of contracts, payments, and location of recipient.
* File for refund of accumulated input tax credit on related inputs.

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If you want, I can help draft a legal note or a short explanation citing relevant rules and circulars. Want me to prepare that?

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