Vat payment towards commission

Commission is an expense u r incurring. U r selling goods to customers and not eBay. Vat, according to my opinion should be charged on the gross amount. If a principal is selling hoods through his agent and gent is paid comm.. It does not matter whether the agents directly deducts comm. or mjot . Sales is the gross amount.

I agree with abhinav. What he tried to explain I will put in an example form. If you are selling in a shop and you appointed a person to sell the goods you are paying him either salary or commission for sales, then it dosen't mean that as you are selling a product ex: of rs1000 and it include rs100 his salary or commission you will deduct that amount from rs1000 to avoid tax payment. Same as you cannot deduct the commission paid to ebay from bill to reduce tax burden. In your case you are feeling burden because you are getting net amount from ebay as income. Logically if you think you are not paying any extra tax on commission

I have two Questions:

I guess BlueBird asked a wrong question. I'll explain that with an example. Say,

Item price is = Rs 1000

Say Vat = 5%

then listing price becomes 1050

Now ebay would be deducting it's commission say 10% on the listing price that's inclusive of VAT which is say Rs 105 but it should have been deducting it's commission on (listing price - Vat amount)

Which means I'm paying Rs 5 extra to ebay, How is that managable? Should we consider that it's taking Rs 5 extra as commission?

2nd doubt

As ebay is taking commissions on sale, what's the way to manage TDS? According to tax regulations person giving commission should be deducting TDS and it becomes his liability to pay TDS to the government, but because the remaining payment is what I'm receieving from ebay (They pay the remaining amount after deducting their expenses) i have no way to charge TDS to them. Can later i be held liable to pay TDS on their behalf? Or how would this go?

Milind Gupta i Think so your query is solved in different topic posted by you.

Originally posted by : CA Mitesh N Kothari
	Milind Gupta i Think so your query is solved in different topic posted by you.

Yup! After taking note of everything i came to the conclusion, you have to pay tax to the governemt on anything that is included in the invoice amount. No matter it's commission or courier charges. If your total invoice amount of that particular product is Rs 1000 you have to pay VAT on Rs 1000.

 

Milind

I'll give an example to support my answer, say you hire someone to sell product for you on commission basis. You're selling a product of worth Rs1000 and you're paying him comission @ 5%

Now when you raise an invoice for Rs 1000 for the customer, you'll pay VAT on Rs 1000 and not on 950.

You would surely pay the comission to that sales person on Rs950 though.

I'm pretty sure, this would help many in future :)

Milind

I have a clarification to make. To my knowledge a product is entitled for either VAT/CST or Service tax and NOT both. In this case if you say VAT/CST needs to be paid for full amount then we endup paying VAT & Service tax for the comission amount paid to the market place. Generatlly in invoices if shipping carges are mentioned they are not accounted for VAT. Please clarify

Dear Members,

I am a new member here. I am not a Tax expert or CA or any consultant. I am a business man with some knowledge about these taxes. I wish to throw my opinions about the above discussed queries. Kindly correct me if I am wrong. These are really some important questions in Taxation. Hence I request distinguished experts here to put your opinions so that the members can be befitted.

Bluebird's concern is much valid. The ecommerce company should deduct Commission only on the amount excluding VAT. In case of examples given like paying commission to agents,etc, all companies pay the commission in the value of sales excluding VAT only, but that is not the case with the ecommerce company, which takes X% on the whole amount.

Further, taking in another way, as per Bluebird's suggestion,  I think he can include in his invoice under a head " Online Commission charges " , the commission charges paid. Thus giving the customer bill for whole amount and also paying VAT only for the actual sales amount.

i.e. Invoice can be raised as below - 

Product --    

Vat @ 5%  ---

ABCD Commission charges  ---

Freight charges  ---

As long as you (Bluebird) has the Invoice given by the Ecom company for the commissions it deducted, it serves as a proof that such "commissions" is deducted from sales value and thus Vat is not chargeable.

Regarding Mr.Miling Gupta's 2nd doubt, You should please note that you cannot expect the ecommerce company to leave out the TDS amount and only deduct the rest. Because anyway the company will not be sure whether you/others really pay such tax to the department. So in this case, you need to pay the TDS amount from your pocket and once on production of TDS certificate to the ecommerce company, they should reimburse the funds to you.

Regarding Mr.Kumar's query, Freight charges need not be charged VAT. I have seen many invoices and even exciseable invoices are mentioning freight charges after the duty and tax. Rarely some companies have informed me that freight charges are exciseable/vat chargeable. Logically, I think if you have a Proper Inovice from your Freight provider, then you need not charge VAT for it. 

All are my opinions. Kindly consult an Tax law expert before taking a decision.

Thanking you.

VAT ON E-COMMERCE TRANSACTIONS

E-Commerce is growing fast, or dying slow…!!

Today everyone is slowly and gradually coming up online to buy & sell. Let us understand applicability of VAT on e-Commerce transactions by an example.

My friend Vaibhav sells protein supplements on various e-Commerce websites wherein his offer price charged to online buyers is Rs. 3500/- (all inclusive). Let us assume that the e-Commerce service provider charges his Commission @ “10% of offer price” plus Service Tax @ “15% of Commission” which comes to Rs. 402.50 (Rs. 350/- + Rs. 52.50). As per seller’s policy, freight up to delivery of goods to buyer shall be paid by the seller (on behalf of buyer). In this case, the freight charges included in above offer price is assumed to be Rs. 150/-. Also let us assume VAT on e-Commerce Sales @ 15% in this case.

 

Question 1: Calculate Amount of Sales Tax when “INVOICE” contains following details- Sales Value- Rs. 3500/- ?

Answer: Before calculating VAT, we have to read the definition of “Sale Price” as per applicable VAT Act. As per Section 2(36) of Rajasthan State Value Added Tax, “sale price” means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act.

In our case, only Sale Price is given as Rs. 3500/-. As no other information is available, VAT payable shall be- Rs. 456.52 i.e. 15/115 of 3500 = Rs. 456.52

 

Question 2: Calculate Amount of Sales Tax when “INVOICE” contains following details- Sales Value- Rs. 3500/-; Freight- Rs. 150/- ?

Answer: As per Explanation III to Section 2(36) of RAJ VAT Act, “Where according to the terms of a contract, the cost of freight and other expenses in respect of the transportation of goods are incurred by the dealer for or on behalf of the buyer, such cost of freight and other expenses shall not be included in the sale price, if charged separately in the invoice.”

Case (i) Buyer makes online payment and provides his communication address for delivery- In this case, if the Seller clearly mentions the amount of freight charged separately in the Invoice, the VAT shall be Rs. 436.96 [15/115 of (Rs. 3500 Less: Freight charges Rs. 150/- )] = [ 15/115 of Rs.3350/- ] = Rs. 436.96.

Note: Commission- Rs. 402.50 (Rs. 350/- + 15% Service Tax) shall be payable to the e-Commerce Service Provider.

Case (ii) Goods are sold as “Cash on Delivery” – In this case, VAT shall be Rs. 456.52 (15/115 of Rs. 3500/-) because where goods are sold as “Cash on Delivery”, the ownership in goods passes to the ultimate buyer only at the time of delivery of goods and not before that. As such, cost of freight & transportation becomes a part of cost of goods sold even if the same is shown separately. Freight cannot be deducted from Sale Price for calculation of VAT.

Note: Commission- Rs. 402.50 (Rs. 350/- + 15% Service Tax) shall be payable to the e-Commerce Service Provider.

 

Question 3: Whether Commission Paid to e-Commerce service provider shall be deducted while calculating VAT ?

Answer: NO. As per Explanation III to Section 2(36) of RAJ VAT Act, only the expenses in respect of transportation of goods incurred by the seller for or on behalf of the buyer are to be allowed if charged separately. However, in this case, agency Commission charges are paid to the service provider for facilitating trade, for bringing the buyer & seller on a common platform. As such, Commission shall not be deducted while calculating VAT even if charged separately.

 

Question 4: Whether any Tax has to be deducted at source on Commission paid/payable to the e-Commerce service provider ?

Answer: If the seller is subject to Tax Audit (Turnover exceeding prescribed limit, presently – Rs. 2.00 Crore) and Commission paid/ payable exceeds the limit prescribed under Section 194H (presently- Rs. 15000/-), TDS @ 5% on Gross Amount of Commission is to be deducted at deposited with the Government. Quarterly TDS Return has to be filed and Form 16A – Certificate for deduction of Tax at Source has to be issued to the service provider.

 

Question 5: What if e-Commerce service provider has already deducted the full commission at the time of remitting the sale consideration to the seller ?

Answer: As per Circular no. 619 dated 04/12/1991 issued by the Income Tax Department, Tax has to be deducted by the seller on the Gross amount of commission payable to the agent and deposit the same with the Government within its due date and issue Form 16A to the agent (e-Commerce service provider in our case). On receipt of the Certificate, the e-Commerce service provider shall remit the TDS amount withheld by him to the seller.

Let us understand this with an example.

(1) Total online Sales incurred by Mr. Vaibhav during FY 2016-17, which amount is received by e-Commerce service provider from ultimate buyer = Rs. 300.00 Lakhs.

(2) Commission Payable to e-Commerce service provider = Rs. 34.50 Lakhs i.e. (10% of 300.00 + ST @ 15%).

(3) Net amount received by Mr. Vaibhav from e-Commerce service provider = Rs. 265.50 Lakhs.

(4) Freight charges incurred on behalf of buyer, separately shown in the Invoice = Rs. 15.00 Lakhs.

(5) VAT/Sales tax to be deposited with the State Government = Rs. 37.17 Lakhs i.e. 15/115 of (300.00 Less: Freight 15.00).

(6) TDS to be deposited by Mr. Vaibhav on Commission payable to e-Commerce service provider Rs. 1.725 Lakhs i.e. 5% of 34.50.

 

Important Note: When Mr. Vaibhav provides Form 16A – Certificate for deduction of Tax at Source to the e-Commerce service provider, the service provider shall remit the amount withheld by him towards TDS [which is included in above at point no. (2)].

Warm regards

CA Vikram Jain

Disclaimer: All facts mentioned in the above examples are imaginary and does not resemble to any person living or dead, except my dear friend Mr. Vaibhav.