Section 86 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
One sentence, and its reach turns on two words that are easy to read past.
Section 86: "Where an agent supplies or receives any taxable goods on behalf of his principal, such agent and his principal shall, jointly and severally, be liable to pay the tax payable on such goods under this Act." The section speaks of goods, not services, and of an agent as defined in s.2(5). It sits alongside — and is distinct from — the deemed supply between principal and agent under Schedule I entry 3, the compulsory registration of agents under s.24(vii), and the per-principal accounts required by Rule 56(11).
Who is an agent
Section 2(5): "agent" means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.
Two features:
The list is illustrative. "By whatever name called" and "any other mercantile agent" mean the label used in the contract does not decide it.
The test is functional — carrying on the business of supply or receipt on behalf of another. A person who merely introduces parties, or facilitates without supplying or receiving, is not within the definition on that footing.
"Any taxable goods"
The joint and several liability in s.86 is confined to taxable goods.
Goods, not services. The section does not extend the joint liability to an agent supplying or receiving services on behalf of a principal. That is a deliberate narrowing relative to s.2(5), which covers both.
Taxable goods. Goods on which tax is payable. An agent dealing in exempt goods is outside the section for those supplies.
"The tax payable on such goods." The liability is on the tax attaching to those goods — not on the agent's own separate liabilities, and not on the principal's other affairs.
So s.86 is narrower than it first reads, and where a demand under it covers services or exempt supplies, the scope of the section is the first point to take.
What section 86 does not do
It is easy to read s.86 as the whole of the agency regime. It is not. Three other provisions do different work.
Schedule I entry 3 — the deemed supply. Supply of goods by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal, is treated as a supply even without consideration.
Circular No. 57/31/2018-GST clarified the key question: the entry applies where the agent has the authority to pass or receive the title to the goods on behalf of the principal — that is, where the invoice is issued in the agent's own name. A commission agent who merely arranges a sale, with the invoice passing directly between principal and buyer, is outside the entry.
Section 24(vii) — compulsory registration. Persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise must register, irrespective of turnover. No threshold applies.
Rule 56(11) — accounts. Every agent shall maintain accounts showing, for each principal separately: the particulars of authorisation received to receive or supply goods or services on behalf of each principal; the description, value and quantity of goods or services received and supplied on behalf of each principal; details of accounts furnished to every principal; and the tax paid on receipts or supplies effected on behalf of every principal. Rule 56(11) →
Rule 29 — valuation. The value of a supply of goods between a principal and his agent is the open market value, or at the supplier's option ninety per cent of the price charged by the recipient to his unrelated customer for goods of like kind and quality, where the goods are intended for further supply by the recipient. Rule 29 →
The practical consequences of joint liability
For the principal. A principal cannot rely on the agent's compliance. Where the agent supplies taxable goods on the principal's behalf and does not pay the tax, the principal is liable for it, jointly and severally.
What that means operationally:
- take monthly confirmation from the agent of supplies made on your behalf, with GSTIN and returns evidence;
- reconcile the agent's reported supplies against your own records of goods sent;
- hold security or retention against the agent's tax obligations where the volumes are significant;
- ensure the authorisation is documented, since Rule 56(11) requires the agent to hold it and it defines the scope of the agency.
For the agent. The exposure runs the other way too — the agent is liable for tax on goods supplied or received on the principal's behalf, whether or not the principal has funded it.
What that means operationally:
- per-principal accounts as Rule 56(11) requires, not a single combined ledger;
- funds for tax collected on a principal's behalf remitted promptly, since an amount collected as tax and not paid over engages s.76 with a 100% penalty; Section 76 →
- a contractual right of recovery from the principal, and, where possible, an advance on tax;
- clarity in the agreement on who issues the invoice, since that determines whether Schedule I entry 3 applies at all.
Key takeaways
- Section 86 makes agent and principal jointly and severally liable for tax on taxable goods supplied or received on the principal's behalf.
- It covers goods, not services, and taxable goods only.
- Schedule I entry 3 deems a supply between principal and agent where the agent has authority to pass or receive title — read with Circular No. 57/31/2018-GST.
- Section 24(vii) requires an agent to register irrespective of turnover.
- Rule 56(11) requires separate accounts for each principal, including the authorisation held.
- Rule 29 values principal-agent supplies at open market value, or 90% of the recipient's onward price at the supplier's option.
Read next
- Rule 56(11): Agent Accounts, Per Principal
- Rule 29: Valuation of Supply Through an Agent
- Invoicing for Supplies Through an Agent and Between Branches
- Section 85: Buying a Business and Inheriting Its GST
Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and Circular No. 57/31/2018-GST.