Commission Received from Foreign Client

Satish (CA Final Student) (479 Points)
Replied 02 September 2009

It will be covered under export of service rules. No need to charge service tax in the bills. Your client can export the service without payment of service tax. Please read the export of Service tax rules 2006

Sunil (Trader) (2610 Points)
Replied 17 September 2009

There is also a recent circular on this in service tax website under CIRCULARS. The service has to be provided to the non resident for his use abroad. In your case the non resident (Chinese) is using your client's service abroad even though it is performed in India. Therefore it is not taxable provided received in foreign exchange and the Chinese should not have office or PE in India. This circular also clarifies regd. receipt of foreign exchange. If you receive FIRC of any convertible currency you have the certificate from bank, so no problem. If you receive by foreign currency cheque and indian rupee is credited to your account, the department has to accept your bank advice as evidence of foreign exchange.

However, please watch out under Income Tax. Your client should satisfy the conditions of being an agent of independent status (simple GCA or broker) as per definition of agents being a business connection permanent establishment in IT Act as well as clause 5 of DTAAs. If he is doing work for the non-resident and excercises authority on behalf of the non-resident in a way to bind him, he can be treated as a Business Connection PE. Simple introduction of buyers and receiving commission for sale / purchase transactions on principal to principal basis by the buyer and seller, both of whom are unrelated to the agent in any way does not make the agent a business connection. However, when agent excercises authority like a power of attorney on behalf of whomever remunerates him, he is a business connection.

As service tax has not defined Permanent Establishment of foreigner, they will go by income tax definition.

K.SUBBIAH (Finance Manager) (21 Points)
Replied 02 June 2012

Dear Professional Friends

We are also assisting a Singapore based company in getting Sales Orders.We understand we have to pay service tax, but whether under business auxilliary services or business support services with reference to subclauses of clause (105) of section 65.

Also we understand from our learned consultants that as per the latest finance bill it is not required to add this service in our registration certificate.

Thanking you,

K.SUBBIAH

anil kumar gupta (general manager) (24 Points)
Replied 05 July 2012

DEAR PROFESSIONAL FRIENDS

HI, WE WISH TO INFORM YOU THAT WE ARE RENDERING OUR SERVICES TO OVERSEAS MANUFACTURERS FOR DEVELOPING THEIR BUSINESS IN INDIA. USUALLY WE GET OUR CHARGES FROM THE OVERSEAS MANUFACTURERS. WE FEEL UNDER THAT WE NEED NOT TO SUBMIT SERVICE TAX. IN SOME CASE IF WE PROVIDE THE SERVICES TO OUR OVERSEAS MANUFACTURERS FOR DEVELOPING THE BUSINESS IN INDIA, HOWEVER IF PAYMENTS ARE MADE BY AN INDIAN COMPANIES AFTER DEDUCTING COMMISSION FOR INDIAN AGENTS FROM THE PAYMENTS OF FOREIGN SUPPLIER AND MAKING THE PAYMENTS IN INR TO INDIAN AGWNT. PLEASE CLARIFY WHEATHER SERVICE TAX IS APPLIED ON THE SERVICES OR NOT. WE FEEL IT SHOULD NOT BECAUSE THE PROPORTIONATE PAYMENTS HAVE BEEN REDUCED FROM THE PAYMENTS OF FOREIGN SUPPLIER. PLEASE CLARIFY? PLS ALSO LET US KNOW WHAT CIRCULAR NO. IS TO BE REFERRED.

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 05 July 2012

Originally posted by : K.SUBBIAH
	Dear Professional Friends We are also assisting a Singapore based company in getting Sales Orders.We understand we have to pay service tax, but whether under business auxilliary services or business support services with reference to subclauses of clause (105) of section 65. Also we understand from our learned consultants that as per the latest finance bill it is not required to add this service in our registration certificate. Thanking you, K.SUBBIAH

No list of services exist as on date. How does it affect you that whether you are providing BSS or BAS. There are no exemption and no abatement in relation to the said services, hence there is no requirement to categorise the service which you provide.

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 05 July 2012

Originally posted by : anil kumar gupta
	DEAR PROFESSIONAL FRIENDS HI, WE WISH TO INFORM YOU THAT WE ARE RENDERING OUR SERVICES TO OVERSEAS MANUFACTURERS FOR DEVELOPING THEIR BUSINESS IN INDIA. USUALLY WE GET OUR CHARGES FROM THE OVERSEAS MANUFACTURERS. WE FEEL UNDER THAT WE NEED NOT TO SUBMIT SERVICE TAX. IN SOME CASE IF WE PROVIDE THE SERVICES TO OUR OVERSEAS MANUFACTURERS FOR DEVELOPING THE BUSINESS IN INDIA, HOWEVER IF PAYMENTS ARE MADE BY AN INDIAN COMPANIES AFTER DEDUCTING COMMISSION FOR INDIAN AGENTS FROM THE PAYMENTS OF FOREIGN SUPPLIER AND MAKING THE PAYMENTS IN INR TO INDIAN AGWNT. PLEASE CLARIFY WHEATHER SERVICE TAX IS APPLIED ON THE SERVICES OR NOT. WE FEEL IT SHOULD NOT BECAUSE THE PROPORTIONATE PAYMENTS HAVE BEEN REDUCED FROM THE PAYMENTS OF FOREIGN SUPPLIER. PLEASE CLARIFY? PLS ALSO LET US KNOW WHAT CIRCULAR NO. IS TO BE REFERRED.

As per the Place of provision of service, if the service receiver is outside the taxable territory of India, then there will be no service tax on the transaction, provided that the payment is received in foreign currency. Hope it will solve your query.

anil kumar gupta (general manager) (24 Points)
Replied 06 July 2012

Dear Mr A.K.Dubey,

Many thanks for your reply. You have given the reply to my first query however reply for following is still not been given:

IN SOME CASE IF WE PROVIDE THE SERVICES TO OUR OVERSEAS MANUFACTURERS FOR DEVELOPING THE BUSINESS IN INDIA, HOWEVER IF PAYMENTS ARE MADE BY AN INDIAN COMPANIES AFTER DEDUCTING COMMISSION FOR INDIAN AGENTS FROM THE PAYMENTS OF FOREIGN SUPPLIER AND MAKING THE PAYMENTS IN INR TO INDIAN AGWNT. PLEASE CLARIFY WHEATHER SERVICE TAX IS APPLIED ON THE SERVICES OR NOT. WE FEEL IT SHOULD NOT BECAUSE THE PROPORTIONATE PAYMENTS HAVE BEEN REDUCED FROM THE PAYMENTS OF FOREIGN SUPPLIER. PLEASE CLARIFY? PLS ALSO LET US KNOW WHAT CIRCULAR NO. IS TO BE REFERRED.

I shall be highly obliged if I can get the reply with some circular no. I could not find anything in our guide lines.

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 06 July 2012

If you can break the transaction bullet-wise depending upon the activities, it will be easier for me to understand the crux of the transaction.

anil kumar gupta (general manager) (24 Points)
Replied 12 July 2012

Dear Mr A.K.Dubey,

I clarify as under:

A. Suppose P.O. value of foreign company is USD 1000 on FOB Basis.

b. Indian agents commission 10% payable by foreign company.

C. If this commission is paid by an Indian company in INR to save the F.E to Indian agent AND BALANCE 90% paid directly to foreign company in Foreign currency.

D. Please clarify if service tax is applicable or not on 10% which indian agent is getting in INR from Indian company on behalf of the foreign supplier from his payments.

Best regards

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 12 July 2012

Ideally service tax should have been charged upon the client for the amount of comm. received in INR, but as it has not been charged the client is not liable to pay any tax to the Govt. in light of the recent changes made in the Service Tax.

anil kumar gupta (general manager) (24 Points)
Replied 13 July 2012

Dear Mr Dubey,

Thanks for your openion. what circular we should refer for service tax. I have consulted many C.A BUT NO ONE ABLE TO TELL THE CORRECT SITUATION ON THIS MATTER. Please highlight more on this matter.

thanks n regards

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 13 July 2012

In order to update yourself you can refer Place of Provision of Service Rules,2012 . This will be useful for you to take prompt action rater than to wait for a professional answer.

ASHOK (MANAGER) (21 Points)
Replied 09 November 2012

Dear Sir

My company has started doing Indenting business with Foreign suppliers for getting orders from Indian buyers. Commission is paid by foreign supplier to us in Foreign currency directly in Bank.

Please kindly clarify, whether service Tax is applicable on the commission received from foreign clients.

Please also inform me the section applicable for exemption, for our record.

Your prompt and kind reply shall be highly appreciated.

Best Regards

ashok.

Tarun M Guntanur (Pursuing CA Final) (299 Points)
Replied 09 November 2012

Hi All,

In the case of Em Jay Engineers and Lenovo (India) (P.) Ltd. (cited supra), the issue pertained to liability to service tax on the commission received for procuring orders in India and forwarding the same to their principals abroad. In that context, it was held that procurement of orders and forwarding the same to their principals abroad amount to delivery of service outside India and therefore, satisfies the definition of ‘export of service’ and, hence, no service tax is leviable.

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