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Agency Agreement in India – Complete Legal Guide, Commission, Authority & 2026

An Agency Agreement is a legal contract under which one person or entity, known as the Principal, authorises another person or entity, known as the Agent, to act on the Principal's behalf for specified business, commercial or legal purposes.

The Agent may be authorised to find customers, negotiate transactions, sell products, purchase goods, collect payments, generate business or perform other specified activities. The relationship of agency is recognised under Sections 182 onward of the Indian Contract Act, 1872. We assist businesses, companies, LLPs, startups and individuals with Agency Agreement drafting, commission structures, territory clauses, IP protection, termination provisions and GST/TDS compliance.

Agency Drafting

Authority & Scope

Commission

Territory

GST / TDS

Termination

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Indian Contract Act, 1872 Sale of Goods Act, 1930 Competition Act, 2002

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Overview

What Is an Agency Agreement?

An Agency Agreement records the terms under which a Principal appoints an Agent to act on its behalf. The Agent may be authorised to find customers, negotiate transactions, sell products, purchase goods, collect payments, generate business or represent the Principal in dealings with third parties. The relationship of agency is recognised under Sections 182 onward of the Indian Contract Act, 1872.

Principal – Agent Relationship

The Principal authorises the Agent to act on its behalf within defined authority and scope.

Commission & Authority

Clearly defines how the Agent is paid, what the Agent can do, and what the Agent cannot do without authorisation.

GST, TDS & Compliance

Agency services have GST and TDS implications; the agreement should address tax treatment, expense reimbursement and statutory compliance.

Indian Contract Act1872 – Sections 182–238

Legal Framework

Agency in India – Key Laws

The Indian Contract Act, 1872 is the principal legislation governing agency relationships, supplemented by other laws depending on the transaction.

Indian Contract Act, 1872

Sections 182–238 cover definition of agent/principal, authority, sub-agents, ratification, duties, remuneration, termination and revocation of agency.

Sale of Goods Act, 1930

Defines mercantile agents and provides rules for sale by agents in possession, including Section 27 on transfer of title.

Competition Act, 2002

Relevant to exclusive agency, territorial restrictions and resale‑price maintenance – Section 3(4) covers vertical agreements including exclusive dealing and exclusive distribution.

GST Laws

GST defines agents (including factor, broker, commission agent, arhatia, del credere agent, auctioneer) and regulates agency services and commission.

Income‑Tax / TDS

Commission and agency payments may attract TDS under Section 194H or other provisions, depending on the nature of payment and recipient status.

FEMA (for International Agency)

Cross‑border agency arrangements may require compliance with FEMA, RBI, withholding tax, transfer pricing and export/import regulations.

The Indian Contract Act contains specific provisions on termination of agency (Sections 201–210). Section 208 provides that termination does not take effect against the Agent or third parties until it becomes known to them – making proper notice critical.

Clear Distinctions

Agency vs Other Relationships

Agency vs Employment

Agent represents Principal, often commission‑based and independent. Employee works for employer under employment relationship with salary/wages and labour‑law protections. Simply calling someone an "Agent" does not automatically determine every legal consequence.

Agency vs Distribution

Agent usually acts on behalf of Principal – transaction is Principal ↔ Customer. Distributor purchases/resells on own account and bears inventory and resale risks. Do not use a Distribution Agreement when the intended relationship is actually an agency.

Agency vs Franchise

Agent represents Principal in specified activities. Franchisee operates its own business under franchisor's brand/system – involving broader rights over brand, business system, IP, training, operations and royalty.

Agency vs Commission Agreement

A commission arrangement may be structured as an agency, but not every commission arrangement necessarily has the same legal scope. A proper Agency Agreement establishes authority, responsibilities, territory, representation and restrictions.

The correct structure depends on the actual commercial relationship. Using the wrong agreement type can create significant legal and commercial consequences.

Agency Models

Types of Agency Agreements

Sales Agency

Marketing Agency

Commission Agency

Purchase Agency

Procurement Agency

Collection Agency

Real Estate Agency

Export / Import Agency

Business Development

Recruitment Agency

Logistics / Freight Agency

Technology Sales Agency

Real Estate Agency requires special care – authority to execute or register property instruments should be expressly addressed. Insurance Agency is a regulated activity requiring compliance with insurance laws.

Essential Elements

Important Clauses in an Agency Agreement

A professional Agency Agreement should clearly define the entire relationship. Key clauses include:

• Title, Date and Place

• Parties (Principal & Agent)

• Recitals / Background

• Appointment of Agent

• Scope of Agency

• Authority of Agent (specific powers)

• Limitations on Authority

• Territory (geography/customers)

• Exclusive or Non‑Exclusive Agency

• Commission (percentage/fixed amount)

• Commission Calculation (gross/net, deductions)

• When Commission Becomes Payable

• Commission on Cancelled / Returned Orders

• Repeat Orders Commission

• Post‑Termination Commission (tail)

• Payment of Commission (schedule, GST, TDS)

• GST Treatment

• TDS Obligations

• Expenses (travel, advertising, samples)

• Reimbursement Procedure

• Principal's Responsibilities

• Agent's Responsibilities

• Sales Targets / Performance Requirements

• Reporting (leads, sales, pipeline)

• Customer Ownership / Records

• Confidentiality

• Intellectual Property / Trademark Usage

• Non‑Solicitation

• Non‑Compete (with Section 27 caution)

• Sub‑Agent Restrictions

• No Unauthorised Representation

• Customer Payment Authority

• Credit / Discount Authority

• Order Acceptance Authority

• Compliance With Laws

• Anti‑Bribery / Anti‑Corruption

• Books, Records & Audit Rights

• Insurance

• Indemnity

• Limitation of Liability

• Term & Renewal

• Termination (Sections 201–210)

• Revocation / Renunciation of Agency

• Immediate Termination

• Consequences of Termination

• Survival Clause

• Dispute Resolution

• Governing Law & Jurisdiction

• Force Majeure

• Notices, Amendment, Assignment

• Entire Agreement, Severability, Counterparts

The Indian Contract Act specifically addresses agency coupled with interest (Section 202) and when termination becomes effective against third parties (Section 208). These should be carefully considered in drafting.

Commission & Payment

Commission: Percentage of sales, fixed amount, per‑unit or hybrid.
Calculation: Define whether based on gross or net sales, after GST/returns/discounts.
Payment Trigger: On order, invoice or receipt of customer payment.
Repeat Orders: Specify tail period (e.g., 12 months) for commission on repeat purchases.
Post‑Termination: Tail commission for transactions resulting from pre‑termination introductions.

Territory & Exclusivity

Territory: State, district, city, customer category, online/offline.
Exclusive Agency: Principal appoints only this Agent within defined scope/territory.
Non‑Exclusive: Principal can appoint others or operate directly.
Competition Law: Exclusive and territorial restrictions may require review under Section 3(4) of the Competition Act.

Authority & Restrictions

Specific Authority: Identify customers, negotiate, collect orders, receive payments, issue receipts.
Limitations: Cannot borrow, give guarantees, change prices, appoint sub‑agents without approval.
Customer Payment: If authorised, specify procedures and liability.
Price/Discount: Define maximum discount authority.

Post‑Termination & Survival

Tail Commission: Commission on pre‑termination introduced customers.
Customer Ownership: Who owns customer relationships after termination.
De‑authorisation: Agent must stop representing Principal, return confidential material.
Survival: Confidentiality, IP protection, indemnity, dispute resolution survive termination.

Tax & Regulatory

GST, TDS and Competition Law in Agency Agreements

GST on Agency Services

GST defines "agent" including factor, broker, commission agent, arhatia, del credere agent and auctioneer. Commission and agency services may attract GST. The agreement should specify whether amounts are inclusive or exclusive of GST.

TDS on Commission

Commission payments may be subject to TDS under Section 194H (currently 5% for residents) or other provisions depending on the nature of payment and recipient status. The exact treatment should be verified for each transaction.

Competition Law (Section 3(4))

Exclusive dealing, territorial allocation, customer restrictions, refusal to deal and resale‑price maintenance can attract competition‑law scrutiny where they cause or are likely to cause an appreciable adverse effect on competition in India.

Do not assume a fixed GST or TDS rate for all agency payments – the correct treatment depends on the actual service, payment nature and parties’ status. Competition‑law review is particularly important for exclusive and territorial restrictions.

Step‑by‑Step Process

Agency Agreement Process

Identify Principal & Agent

Verify legal names, entity status, PAN, GST, address and authorised representatives.

Define Scope & Authority

Decide exactly what the Agent will do and what authority/restrictions apply.

Finalise Commercials & Draft

Set commission, territory, exclusivity, expenses, reporting; prepare detailed Agency Agreement.

Review, Execute & Operate

Review tax/competition, execute, set up reporting, issue authorisation letter, commence agency.

Documents Required

Documents for Agency Agreement

Agency Agreement Draft

Principal PAN / GST / Incorporation

Agent PAN / GST / Entity Documents

Board / Partner Authorisation

Price List / Product Information

Marketing / Sales Materials

Trademark / IP Documents

Power of Attorney (if required)

Licences / Regulatory Approvals

For international agency, additional documents may include FEMA, transfer‑pricing, customs and export/import compliance documents.

Pre‑Signing Checklist

Agency Agreement Checklist

☐ Principal identified & verified

☐ Agent identified & verified

☐ Effective date specified

☐ Scope defined

☐ Authority defined (specific powers)

☐ Authority limitations defined

☐ Territory defined

☐ Exclusive / Non‑exclusive status defined

☐ Products / services defined

☐ Commission structure defined

☐ Commission calculation (gross/net) defined

☐ Payment trigger defined

☐ Repeat‑order commission addressed

☐ Post‑termination commission addressed

☐ GST treatment clarified

☐ TDS reviewed

☐ Expenses defined

☐ Reimbursement procedure defined

☐ Sales targets defined

☐ Reporting requirements defined

☐ Customer ownership addressed

☐ Confidentiality included

☐ IP / trademark usage included

☐ Non‑solicitation reviewed

☐ Non‑compete reviewed (Section 27)

☐ Sub‑agent restrictions included

☐ Customer‑payment authority defined

☐ Credit / discount authority defined

☐ Order‑acceptance authority defined

☐ Compliance clause included

☐ Anti‑bribery clause included

☐ Audit rights included

☐ Indemnity included

☐ Liability clause reviewed

☐ Term (start/end) specified

☐ Renewal defined

☐ Termination defined

☐ Revocation procedure reviewed

☐ Post‑termination obligations defined

☐ Survival clause included

☐ Dispute resolution included

☐ Governing law & jurisdiction included

☐ Force majeure included

☐ Notices, amendment, assignment included

☐ Competition‑law review completed

☐ Signatures completed

Avoid These Errors

Common Mistakes in Agency Agreements

Giving unlimited or vague authority

Not defining commission calculation (e.g., "5% commission" without defining revenue base)

No post‑termination commission clause for pending sales

No territory or customer definition

Calling a distributor an Agent

No customer ownership clause

Broad non‑compete (Section 27 risk)

No IP / confidentiality protection

No termination procedure (Section 208 notice requirement)

Ignoring GST / TDS tax treatment

No sub‑agent restrictions

No audit or reporting rights

FAQs

Frequently Asked Questions

It is a contract under which a Principal appoints an Agent to act on the Principal's behalf for specified purposes.

The person or entity for whom the Agent acts.

A person authorised to act for or represent the Principal in dealings with third parties.

Yes, subject to applicable contract-law requirements under the Indian Contract Act.

The Indian Contract Act, 1872 contains the principal statutory framework governing agency (Sections 182–238).

Sections 201–210 of the Indian Contract Act deal with termination and related matters.

Yes. Commission may be a percentage of sales, fixed amount, per‑unit or hybrid.

Only if the agreement provides for it (e.g., a tail period for repeat orders).

It can, if the agreement contains a post‑termination/tail commission provision.

Yes, subject to the agreement and applicable law. The Indian Contract Act addresses termination and revocation of agency.

Not necessarily. Section 208 addresses when termination becomes effective against the Agent and third parties – proper notice is essential.

Certain circumstances, particularly an agency coupled with an interest, receive special treatment under Section 202 of the Indian Contract Act.

Not automatically. The agreement and applicable agency law should be checked. Sub‑agency without authority can create complications.

Only if the Agent has appropriate authority – express or implied under the law.

Only if authorised. Price/discount authority should be clearly specified in the agreement.

Only if authorised. The agreement should specify payment procedures, receipt issuance, deposit and reconciliation.

Not necessarily. The actual relationship depends on the contract terms, degree of control and conduct – an Agency Agreement can create an independent commercial relationship.

Not necessarily. An Agent typically acts for the Principal, while a distributor commonly purchases/resells on its own account.

An Agent who receives specified exclusive agency rights within a defined scope or territory.

It can contain restrictions, but broad post‑termination non‑compete clauses may face enforceability issues under Section 27 of the Indian Contract Act.

GST treatment depends on the nature of the agency service and applicable GST provisions. The agreement should specify whether amounts are inclusive or exclusive of GST.

It may be – commission payments can attract TDS under Section 194H (currently 5% for residents) or other provisions depending on the nature of payment and recipient status.

Under the Sale of Goods Act, a mercantile agent is an agent who, in the ordinary course of business, has authority to sell goods, consign goods for sale, buy goods or raise money on the security of goods.

Yes. Exclusive dealing, territorial allocation, customer restrictions and resale‑price maintenance can raise issues under Section 3(4) of the Competition Act.

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From verifying the Principal and Agent, defining authority and commission structures, setting territory and exclusivity, to ensuring GST/TDS compliance, protecting IP and handling termination – we help you structure a clear and legally robust agency relationship.

Understand Relationship → Define Authority → Set Commission → Draft Agreement → Review Tax & Competition → Execute → Operate & Report

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