Individual Direct Selling Agent ( DSAs) other than a body corporate, partnership or a limited liability partnership firm.
A banking company or a non-banking financial company located in a taxable territory
Another specific case notified under the Reverse Charge Mechanism (RCM) is that of services supplied by a Direct Selling Agent (DSA) to a banking company or a non-banking financial company (NBFC). This is governed by Entry No. 11 of Notification No. 13/2017-Central Tax (Rate), inserted via Notification No. 29/2018-Central Tax (Rate) and clarified through corresponding IGST and UTGST notifications. As per this entry, RCM applies only when the DSA is an individual, and not a body corporate, partnership firm, or limited liability partnership (LLP). In such cases, the liability to pay GST rests with the bank or NBFC, and the individual DSA is not required to charge or deposit GST on such services.
A Direct Selling Agent is a person engaged in sourcing customers or leads for financial products, such as loans, credit cards, or deposits, on behalf of a bank or NBFC. They typically operate on a commission basis. Since many DSAs operate as individuals or sole proprietors with limited turnover and administrative capacity, the government has provided relief by shifting the GST compliance burden to large and organised recipients like banks or NBFCs, through RCM.
However, it is critical to note that RCM is applicable only when the DSA is an individual. If the DSA is structured as a partnership firm, LLP, or company (i.e., body corporate), then RCM does not apply, and such DSAs are required to charge GST under the forward charge mechanism, assuming their turnover exceeds the registration threshold. This exclusion is specifically mentioned in the notification and must be strictly followed.
For example, if Mr. A, an individual DSA operating as a sole proprietor, receives Rs. 30,000 commission from XYZ Bank Ltd., RCM will apply, and XYZ Bank will pay 18% GST under RCM. Mr. A is not required to register or charge GST, provided his aggregate turnover does not exceed the limit prescribed under Section 22. In contrast, if the DSA is M/s ABC Associates, a partnership firm, or M/s FinServe Pvt. Ltd., a private limited company, then the service is not eligible for RCM, and the respective DSA must issue a tax invoice and collect GST at 18% under forward charge. The responsibility to pay GST in such cases lies with the DSA.
The entry makes it abundantly clear that the benefit of RCM is available only to individual DSAs, and not to entities having a distinct legal status, such as partnerships or body corporates. The rationale is that large entities have the necessary resources and infrastructure to comply with GST obligations, unlike individual DSAs, many of whom may not be liable to register under GST in the normal course.
In summary, only services supplied by individual DSAs to banks or NBFCs are covered under RCM, and the recipient is liable to pay GST. Where the DSA is a firm, LLP, or company, forward charge applies, and the DSA must discharge the tax liability in the usual manner.