How Service tax is calculated on Commission on Sale of Goods?
I've a doubt in my mind regarding the service tax charged to my seller. I'm into an e-commerce business which will include various sellers & buyers. We are an sole proprietorship firm.
my query now-
let's assume we will charge 12% commission on every Rs.100 sales from our sellers & the govt. service tax is 12.36%, now my query is this- Does service tax will be calculated on the commission (Rs.12) amount we charge form the Sellers or on the whole amount i.e Rs 100, since we provided service for Rs.12 to the seller only! or suggest if there is any another provision of taxing
Your doubt or concern can be answered in 2 different ways. But before that we will consider that your sellers have Service Tax Registrations.
First point to be noted is that Service Tax is not applicable on trading activities. That means no service tax is to be payable by traders.
But in your case you are providing assistance in selling the goods, and your services will be considered as Business Auxiliary services and attracts service Tax. In this case you have to register for service tax and service tax to be charged on commission you charge. So you have to charge service tax on Rs. 12. The service tax charged will not be an expense for you or your seller, since they can take the input credit.
Second Assumption : Sellers dont have Service Tax Registration (This looks reasonable since traders normally dont go for service Tax registration, as Service Tax is not applicable to them)
In this case if you go for service tax than service tax charged will be expense for your sellers and increase the cost to them. Here the most cost effective way to avoid service tax is by entering the transaction not as commission agent but a sole-dealer of goods. You dont charge the sellers but collect the money directly from customers.
As per this method your transaction should flow like this:
Sellers issue you Bill of 88+VAT, you issue bill of 100+vat to customer. Here the 12Rs. Comes to your pocket and service tax is also not applicable.
And the benefit is you can take VAT input and Sellers can take input credit. Second method looks perfect because Tax will not be an expense for you and seller.
So based on both the situation you can choose either of the role:
A Sole seller of good purchased from sellers(Second Option)
Commission Agent (First Case)
Thanks pulkit.. I'm new to all this taxation thing, it'll take some time to grasp all these thing. I guess' your second approach is more likely & it do not burdenize our sellers & buyers.
Now for this vat thing what kind of certificates/licences I've to take? And is there any legal glitch by using second approach?
There is no legal glitch. Just like a normal Dealer take the VAT registration and start trading.
But if you go for first option upto 9Lakh income, Service tax is not attracted.
You have to start charging service tax only if commission income crosses 10 Lakhs in a year (April to March).