Broker commission in textile trading: how brokerage is worked out and recorded
Brokerage on the taxable value or per lot, due on paid bills or on all of them, and the TDS that may apply. A worked example, and how to keep the broker's account free of argument.
In the cloth market most deals come through a broker (dalal), who brings the buyer and the seller together and is paid a brokerage for it. The rate is usually agreed by word of mouth; the argument comes later, over which bills it is due on and what it was worked out on.
Three things to agree with the broker
- The base: the taxable value of the bill (without GST), or a flat amount per lot.
- The rate: a percent of the value, or rupees per lot.
- When it is due: on every bill, or only on bills the party has paid in full.
A worked example
| Bill | Taxable value | Paid? | Brokerage at 1% |
|---|---|---|---|
| Bill 101 | 1,20,000 | Yes | 1,200 |
| Bill 102 | 85,000 | Yes | 850 |
| Bill 103 | 2,10,000 | No | 2,100 (not yet due) |
| Due now | 2,050 |
Worked on the taxable value, the GST on the bill does not inflate the brokerage. Where the brokerage is due only on paid bills, a bill settled partly by payment and partly by a return counts as paid once the two together clear it.
Per lot instead of per cent
On grey purchases a broker is sometimes paid a fixed amount for each lot rather than a percent: three lots on one bill at ₹500 a lot is ₹1,500, whatever the value.
TDS and GST on brokerage
Commission and brokerage paid to a resident can attract TDS under the commission section once the year's total to that broker crosses its limit, and a GST-registered broker charges GST on his brokerage. The rate and the limit change with the Finance Act: check the current ones with your CA.
Keeping the account clean
- Keep the broker on the party, so every bill carries him without anybody remembering to type it.
- Settle brokerage from a list of bills, not from a total, so each figure can be traced.
- Pay against the list, and keep it with the payment.
In GintiDesk
The broker is set on the party and comes onto each bill. The Brokerage Report lists every bill with its brokerage, by percent of the taxable value or per lot on a grey purchase, for paid bills, unpaid bills or both, broker by broker. The broker's own master keeps his PAN, GSTIN and TDS section in one place.