A business may appoint a pure agent to do some of its operations due to lack of expertise or non availability of employees in a location. The business transaction between a business and pure agent may vary depending on the kind of operations executed by the agent.
The business transactions between a pure agent and the party appointing the pure agent will include:
● The pure agent's expenses in collecting the party’s goods and transporting the same to him. The pure agent will collect the actual expenses from the party without charging tax.
● The commission charged by the pure agent for handling the goods of the party. The commission amount is taxable.
In this topic we will look at the way these transactions are recorded in the books of pure agent and the party.
On this page:
Record transactions in the books of a pure agent
Record transactions in the books of the party appointing the pure agent
A pure agent acts as a supplier of service and charges commission for the service rendered. Any expenses incurred in handling the goods are also billed to the party.
Since pure agent expenses are not taxable and commission is taxable both cannot be recorded in the same invoice when separate ledgers are used for expense and commission.
To record transaction for expenses
1. Create separate ledgers for expense and commission.
o In the pure agent expense ledger, set Is GST Applicable? to Not applicable.
2. Record the sales invoice in the accounting invoice mode for the expense, without charging tax.
3. Accept the transaction.
To record transaction for commission
1. In the commission ledger (income), set Is GST Applicable? to Applicable and select Services as the Type of Supply.
2. Record the sales invoice in the accounting invoice mode.
3. Select the commission ledger and tax ledgers.
4. Accept the transaction.
To record transaction for both expense and commission using a single ledger
1. Create a ledger for the commission charged and enable GST with Services as the Type of Supply.
2. In the sales invoice, click F12: Configure and enable the option Allow modification of tax details for GST?
3. Select the commission ledger and enter the total value of commission and expense, and press Enter. The GST Details screen appears.
o Click F12: Configure and enable the option Allow override assessable value?
4. In the GST Details screen, enter the amount of commission in Taxable Value field.
5. Select the tax ledgers. Tax will be calculated only on the taxable value recorded in the GST Details screen.
6. Press O to accept without conflict.
To record transaction for commission charged
1. Create a ledger for the commission charged and enable GST with Services as the Type of Supply.
2. Record the sales invoice in the accounting invoice mode.
3. Select the commission ledger and enter the amount.
4. Select tax ledgers.
5. Accept the transaction.
The party purchases the services of the pure agent to handle his goods. All bills from the pure agent will be expenses for the party. The pure agent will not charge tax on the actual expenses incurred in handling the goods, and will charge tax on the commission charged.
In Tally.ERP 9 you can create a single ledger for expenses and commission, and calculate tax only to the extent of commission. You can also create two separate ledgers for expense with GST not enabled and for commission with GST enabled.
To record purchase of expenses with two separate ledgers
1. In the pure agent expense ledger, set Is GST Applicable? to Not Applicable.
2. Record the purchase invoice in the accounting invoice mode for the expense, without charging tax.
3. Accept the transaction.
To record purchase invoice for commission
1. In the commission ledger (expense), set Is GST Applicable? to Applicable and select Services as the Type of Supply.
2. Record the purchase invoice in the accounting invoice mode.
3. Select commission ledger.
4. Select the tax ledgers.
5. Accept the transaction.
To record purchase using a single ledger
1. Create a ledger for the commission charged and enable GST with Services as the Type of Supply.
2. In the purchase invoice, click F12: Configure and enable the option Allow modification of tax details for GST?
3. Select the commission ledger and enter the total value of commission and expense, and press Enter. The GST Details screen appears.
o Click F12: Configure and enable the option Allow override assessable value?
4. In the GST Details screen, enter taxable commission in the field Taxable Value.
5. Select the tax ledgers.
6. Press O to accept without conflict.
To record purchase invoice for commission charged by pure agent
1. Create a ledger for the commission charged and enable GST with Services as the Type of Supply.
2. Record the purchase invoice in the accounting invoice mode.
3. Select the commission ledger.
4. Select the tax ledgers.
5. Accept the transaction.
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