Valuation of Supply under GST – In Case of Pure Agent

Last Update Date : May 04, 2019
Estimated Read Time: 4 min

As per the basic rule of valuation, the direct cost related to end service is often included in the value of services and charged from the customer. Further, on that value GST is calculated and paid to the government. However, pure agent is the different case altogether. Any services provided as pure agent are not included in the ultimate value of the services and hence no GST is charged on that service.

Let us understand who is a pure agent.

Meaning of Pure Agent under GST Law

“Pure agent” means a person who–

  • Enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both.
  • Neither intends to hold nor holds any title to the goods and/or services so procured or provided as pure agent of the recipient of supply.
  • Does not use for his own interest such goods and/or services so procured; and
  • Receives only the actual amount incurred to procure such goods and/or services in addition to the amount received for supply he provides on his own account.

Example: Suppose Mr. A availed a construction service from Mr. B. During the construction period, Mr. A request Mr. B to help him find a shop to buy the best furniture. Mr. B helped him and purchased the furniture from the any company and handed over the bill to Mr. A. Mr. A paid Mr. B actual sum payable for furniture. In this case, Mr. B is also acting as pure agent.

Conditions Where the Cost Incurred by a Pure Agent should be Deducted from the Value of Taxable Supply

Expenditure or costs incurred by the supplier as a pure agent of the recipient of service shall be excluded from the value from the value of taxable supply if all the following conditions are satisfied which are as follows:

  • The service provider acts as a pure agent of the recipient of service when he makes payment to third party on authorization by such recipient.
  • There has to be a written contract between the recipient of the service and the pure agent and he is authorised by the recipient to make such payments.
  • The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
  • The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
  • The recipient is liable to make payment to the third party for the services procured. In case, where the payment is made by the pure agent to the third party, the recipient is liable to reimburse such payment to the pure agent.
  • The recipient is aware that the payment is made for the services that have been provided by the third party.
  • The pure agent recovers from the recipient of the service only such amount as being paid by him to the third party.

In any case, if the above conditions are not satisfied, the expenditure reimbursed by the recipient to the pure agent shall be included in the value of taxable supply and shall attract GST. Also, it should be included in the aggregate value of taxable supply for the purpose of determining the turnover for registration under GST.


Mr A entered into a contract with Mr B for providing a house construction service for ₹ 30 Lakhs. The contract included for the construction along with painting and finishing but does not have any agreement for furnishing. During the course of construction, Mr A asked Mr B to help him find a trusted supplier of furniture and buy on his behalf. Mr B helped him purchase the furniture, paid ₹ 7 Lakhs on behalf of him and handed over the bills to Mr A.
Mr A subsequently paid Mr B the actual amount of bills indicated separately in his invoice without adding any additional charge. In such case, Mr B is acting as a pure agent.

S. No. Component Charged Amount
1. Construction Charges ₹ 24 Lakhs
2. Painting and Finishing ₹ 6 Lakhs
3. Paid for Furniture ₹ 7 Lakhs
  TOTAL ₹ 37 Lakhs

Simply speaking, pure agent is a person who makes a supply of goods and services to the recipient. He undertakes to receive ancillary services from other suppliers of goods & services and incurs expenditure on behalf of his client. Later the actual incurred expenditure is claimed as reimbursement.

When it is known that the goods or services are procured in the capacity of a pure agent for the sole use of the recipient, it becomes easy to determine the aggregate value of supply for the purpose of levy of GST. The reimbursement for expenses so incurred as pure agent on behalf of the recipient shall not form part of the value of supply and shall also be excluded from the aggregate turnover in order to determine the threshold limit for registration under GST which is ₹ 20 Lakhs (or ₹ 10 Lakhs in specified cases).

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CA Chetan Shinde
CA Chetan Shinde
Chetan is the Lead Tax Advisor at H&R Block (India) with an experience of almost half a decade in audit and taxation. His professional areas of interest are GST advisory and statutory audit. Apart from taxation, he is passionate about social causes and works extensively towards rural school development and literacy.