Service tax applicability on commission

[Sharad Aggarwal]

Dear Friends need ur feedback.case study: Insurance company 'I 'pays commission to the agent 'A' and the applicable service tax (pre deducted)on the commission is paid out by 'I' direct to the govt. 'A' further gives referral commission to 'R'. 'R' does not collect any service tax on its receipts from 'A' and so does not deposit any service tax.please comment the service tax liability on part of 'R' keeping in mind that 'I' has prededucted service tax on the bigger commission and 'A' only partially pays to'R'. ur comments case study is apprecited.

[Surender Gupta]

Though the referral commission is illegal as per the law of insurance (IRDA), but since the referral commission is being paid to A to R, the same would constitute promotion of service of A by the R. R is not involved into any insurance agency service, but merely promoting the service of A. Therefore, R would be liable to tax under Business Auxiliary Service (BAS). Here the service tax paid by the 'I' on commission paid to A is not relevant.

AI Summary

Business Auxiliary Service: referral commissions are taxable when promoting another's service, irrespective of prior tax pre-deduction. The referral fee paid by A to R is treated as promotion of A's service and therefore falls within Business Auxiliary Service, making R liable to service tax on the referral commission; the service tax previously deducted and paid by the insurer on the larger commission to A is not relevant to R's separate liability.