Who is a pure agent and why is a pure agent relevant under GST
Suppose Mr. A (supplier) provide professional services (professional fees Rs. 10000) and he make some expense (amounting Rs. 5000) on behalf of Mr. B (recipient), whether such amount recovered by Mr. A paid on behalf of Mr. B will be part of invoice value and whether GST will be charged on whole amount ( i.e. Rs. 15000).
This is very general question and prima facie answer comes yes!
But this misconception will be cleared if we know the PURE AGENT concept. The concept is borrowed from the erstwhile Service Tax Determination of Value Rules, 2006.
If Mr. A(supplier) provide professional services and he make some expense on behalf of Mr. B(recipient) as a PURE AGENT then such amount recovered by Mr. A paid on behalf of Mr. B will not be chargeable to GST.
Meaning of Pure Agent
“pure agent” means a person who satisfy below conditions:-
(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;
(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;
(c) does not use for his own interest such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.
Value of supply of services in case of pure agent
The expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient;
(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
However, In case above conditions are not satisfied, such expenditure incurred shall be included in the value of supply under GST.
The following example will make the concept clearer:
- ABC Pvt. Ltd. is engaged to handle Visa application for Mr. Lakshya.
- Other than its service fees, ABC Pvt. Ltd. also recovers from Mr. Lakshya, Visa fees charged by authorities .
- ABC Pvt. Ltd. is merely acting as a pure agent in the payment of that fee.
- Therefore, ABC Pvt. Ltd.’s recovery of such expenses is a disbursement and not part of the value of supply made by ABC Pvt. Ltd. to Mr. Lakshya.
A pure agent concept is an important one for businesses as it has direct implications on the value of taxable service. It has direct bearing on the amount of GST charged on a particular supply.
It also has bearing on the aggregate turnover of the supplier and therefore on calculating the threshold limit for registration. Whenever the intention is to act as a pure agent, care should be taken to ensure that the conditions specified for such pure agents and further conditions given in the valuation are also met so that only the real value of the service provided is subjected to GST.