What do you mean by minimum guarantee? Can you explain in detail?
Minimum Guarantee , Sale on Approval
Hi , Through my previous question , I have got an idea that it would be wiser to not opt for consignment model as it would lead to additional GST on the commission that I would pay to the retailer . 1). So now Consider the scenario if i enter into an arrangement with a retail store to tie-up with my brand label , under sale on approval basis . In this case I understand I would need to create a challan in the name of the retailer and won't be liable to pay GST on the commission that I would be paying upon sales transaction through the retail store . So, when the sales happen in their store , they would pay me the amount deducting their commission , when I raise an invoice to the retailer for the sales they have made . 2) .Also , I would be paying a minimum guarantee . Does the minimum guarantee attract a GST ? Please fill me in on any legal aspect that I might have missed in this case .
Asked 7 years ago in GST
Hi
Please elaborate the minimum guarantee clause. How things will work out between you and the agent? Will the goods ever be returned to you? Or by minimum guarantee you mean that if goods are not sold, you will pay a certain minimum amount to the seller?
With minimum guarantee I mean , 25000 per month irrespective of whether the items are sold or not . If the sales is made then 37% of that revenue . So, monthly either 37% of revenue or 25000 , whichever is higher .
Asked 7 years ago
If Goods will be sold on approval basis, following will be points of consideration:
- First of all you need to raise challan for the goods sent to the retailer.
- If goods not sold within 6 months then you need to either raise invoice or get it back.
- Retailer will issue commission invoice to you which again increases compliances and documentation for retailer.
- Accumulation of ITC on account of purchases made by you as you will raise invoice once goods will be sold by retailer.
If Goods sold on commission basis (supported by the agreement).
- You need to raise invoice to the retailer as and when goods will be delivered.
- No accumulation of ITC and minimum chances to pay output GST from pocket as GST rate in case of trading remains same.
- No need for issue of commission invoice by retailer. Commission amount will be supported by the agreement which will be easy for the auditors/authorities to vouch. Retailer needs to pay GST on commission only when it exceeds Rs. 20 lacs.
Dear Sir,
For you commission is an expense and not income. It is the duty of the retailer to pay GST on commission. You should not bother it.
Thanks
In case of payment of minimum guarantee, GST will be applicable. Retailer will charge you GST.
However, we need to discuss this in detail over a call to see if this is also out of the purview of GST.
With your facts, it is assumed that the retailer is registered under GST. So, GST shall be charged on commission. Since the retailer will invoice you for the commission amount, GST on commission shall be recovered by him from you only. So, it's ultimately a loss.
It is advisable to work as normal purchase and sale transactions. If the 25000 limit becomes applicable in a month, the amount exceeding the rate difference for purchase and sale transaction should only be considered as commission. We may work out other options for tax saving on a private conversation.
Given your case, GST will be applicable.
Ask a Chartered Accountant
Get tax answers from top-rated CAs in 1 hour. It's quick, easy, and anonymous!
Ask a CA