In the GST Act, there is a rule to pay GST tax on the supply made by any Principal or Agent. In this article, we are describing what are the principal and agents in GST. What are the rules for determining the tax on the supply of any goods or services on their behalf?
#What is the principal in GST?
According to the definition given in the GST Act, a principal is a person or businessman, in whose name an agent or seller transacts goods or services. The principal place of business is also mentioned in the certificate of registration. For example, an automobile company's dealership store. Here the automobile company is the chief and the dealership store sells its goods as an agent of that company.
#What is an agent in GST?
In the GST Act, the word "Agent" is prescribed for such person, who works as a representative of a business owner, salesperson, commission agent, broker, agent, or Del Credere Agent or any other person with similar responsibilities. In the event of any transaction between the principal-principal or between the principal-agent or between the agent-agent, it is the rule to repay the GST.
#What is Del Credere Agency?
The term A del Credere agency is used for a person who not only plays the role of principal's seller or broker as an agent but also becomes a guarantor on behalf of his principal in deals with a party.
#How does the assessment rule determine GST liability?
In the event of a transaction by the principal or agent, the valuation/assessment rule is used to determine the liability. Sometimes agents and their principals are jointly responsible for paying GST tax because they have GST registration. Sometimes both are responsible for paying GST separately.
According to the valuation rule, the price of supply for GST will be considered as follows-
Goods and services’ open market value
In the deal, 90% of the price charged to the customer
For clarification, it’s explained with an example-
Shrinivas has his own detergent business. Kuldeep Srivastava works for him as a salesperson. Here, Shrinivas will be considered the principal and Kuldeep Srivastava agent.
In a transaction, agent Kuldeep Srivastava supplied detergent for Rs 4000 per quintal. Rajat Saxena, another detergent supplier, does the same detergent at Rs 3800 per quintal.
Now the open market value of detergent for Shrinivas here will be considered as Rs 3800. This will be equal to the price sold by Silver. If Shrinivas chooses the option of 90 percent, then the price of supply for him will be Rs. 3600 (90 percent of 4000)
Comparing the two options, opting for open market value is a loss deal for them. A 90 percent option would be better for him. On choosing the first option, the price of their goods will be fixed at Rs 3800 per quintal assuming GST. Whereas, on choosing the second option, the GST will be fixed at just Rs 3600 per quintal.