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Normally any expenses incurred by the supplier of goods or services or both and reimbursed by the recipient would be included in the transaction value of supply for the purpose of levy and collection of GST. However if the supplier of services merely acts as a pure agent than such expenses reimbursed would not be included in the transaction value.

As per rule 7 of Draft Determination of Value of Supply Rules the expenditure or costs incurred by the supplier as a pure agent of the recipient of supply of services shall be excluded from the value of supply, if all the following conditions are satisfied:-

1. The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party for the services procured as the contract for supply made by third party is between third party and the recipient of supply.

2. The recipient of supply uses the services so procured by the supplier service provider in his capacity as pure agent of the recipient of supply.

3. The recipient of supply is liable to make payment to the third party.

4. The recipient of supply authorizes the supplier to make payment on his behalf.

5. The recipient of supply knows that the services for which payment has been made by the supplier shall be provided by the third party.

6. The payment made by the supplier on behalf of the recipient of supply has been separately indicated in the invoice issued by the supplier to the recipient of service.

7. The supplier recovers from the recipient of supply only such amount as has been paid by him to the third party and

8. The services procured by the supplier from the third party as a pure agent of the recipient of supply are in addition to the supply he provides on his own account.

Pure agent means a person who:-


a) 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.

b) Neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply

c) Does not use for his own interest such goods or services so procured and

d) Receives only the actual amount incurred to procure such goods or services.

Illustration: Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

The purpose of this article is to spread awareness about the soon to be implemented Goods and Service Tax in India.

The author is a fellow member of the Institute of Chartered Accountants of India and also a qualified Company Secretary. The author has also done DISA(ICAI), certificate on IFRS (ICAI), Certificate on Forex and Treasury Management (ICAI), Certificate on Forensic Accounting and Fraud Prevention (ICAI). The author practices as a Chartered Accountant under the name and style of Rishabh Kumar Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com or 91 9007909221 or Twitter @CARKBarmecha.

CA Rishabh Kumar Barmecha

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57 thoughts on “Reimbursement of expenses under GST Regime

  1. Savari Deshpande says:

    We have received invoice from pure agent for licence renewal. While re-newing licence concerned department has charged GST . Can we calim GST credit for the same.

    1. Supriya Naik says:

      Why not…if this license is for the business purpose than obviously you can claim input tax credit…

  2. chandrakant says:

    our helicopter is hanger with xyz company they have providing us monthly fixed maintenance invoice including GST , other then this some incidental expenses have been done like taxi charges and other expenses and raised debit note including GST. now my question is whether they can charge GST on incidental expenses.
    please advise

  3. Dhananjay Thigale says:

    We are paid our franchise travelling exp (like director, managers was visited to outlet) & this amount will recovered from franchise so there is applicable GST or Not ?

  4. yashpal madan says:

    We are providing Generator Set to banks on monthy rental basis.some banks are paying fix amount including supply of diesel,maintenence & operation of set and we charge GST @18% on fix amount.
    Some banks are paying rent of generator @10000 p.m which include operation @maintenence plus diesel consumption @ 8 liter per hour at market diesel rates as per running of Generatror depending on power supply situation.
    We generate two bills one for rent of generator and second for reimbursement of diesel.
    On rent bill we charged 18%GST and we are not charging GST on reimbursement of diesel as petrolieum product are not in GST.
    Please suggest me this is right or we should charge GST on reimbursement of diesel bill as bank are not ready to pay GST on diesel

    1. Nayane Kale says:

      Your are doing right as Diesel is out of ambit of GST regime, so, you cant charged GST on it.

  5. Raj Munot says:

    I have a question. I own a Digital Marketing firm whereby i offer Facebook and Google ad campaign set up and management services.

    There are two costs in this case. Agency service and Ads spend. Agency service income is what we earn and ad spend is paid to Google, Facebook and Bing.

    Now in this case, the client has told us to pay the amount to Google, Facebook and Bing on their behalf which they will then re-imburse to us. So we are acting as pure agent in this case for ad spend. So in this case, should we have Facebook, Google and Bing raise the invoice in the name of client or will it be fine if we have them raise invoice on my agency’s name.

    I intuitively feel that it should be raised on my client’s name so that they can get input tax credit as we are merely paying the money on client’s behalf.

  6. Meg says:

    Hi

    good info here- thank you. We, a small company need some clarity on GST issue when invoicing our clients. We have taken some project (market research) for a client; billed them the amount as per the estimate. Now our Out of Pocket expenses incurred on the project work are given to client separately (separate from the project invoice) with exact bills and we are billing exact amount, no overages for administration etc. On some bills such as food GST was charged, one or two minor bills the vendor themselves doesn’t have GST such as a small car owner whose car we used (We have a letter from all our ‘small’ local vendors stating they do not earn over 20 lakhs a year and do not have a GST number). Anyway point of all this background stuff, is to ask that say the OPE bill is a certain amount, we have bills to prove, and we are charging that exact amount. Do we add 18% GST on the OPE bill?
    Our accountant has said we must charge GST, our client says we must not charge tax. What do we do? Also can you tell me the GST law, the provision so I can quote it, as needed to our client? Thanks a lot

  7. Prashant Khatke says:

    Please resolve:-

    If i am providing some type of loyalty points to my customers on purchase of goods from my franchisees/agency e.g. 50 paisa on 100 Rs. & simultanously recovering 10 paisa from francisee/agency as providing points increase sales at both ends.

    So my question is that whether i should liable for 10 paisa to govt ?

    1. Sagar Sharma says:

      We don’t understand your query. please explain in detailed.

  8. MANOJ SANGHAVI says:

    We are providing warehouses on lease (which come under services) & for which we are paying gst on warehousing rent, we also charge electricity expenses on actual basis i.e units consumed by the recieptent & rates charged as per actual electricity bill. Are we liable to levy gst on such expenses which are reimbursement & on actual basis? Please reply. Thanks

    1. Sagar Sharma says:

      GST is not applicable on Electricity and therefore you would not liable to pay GST on reimbursement of electricity bill.

  9. JAISIMHA G says:

    Dear Sir,

    Ours is anEngineering Services Company. We send our employees abroad and we pay a fixed sum as Per Diem either in Foreign currency or INR. And we treat this as Foreign Travel Expenses. We bill our client in Foreign Exchange and the proceeds is received in Foreign currency. Are we supposed to Pay GST on reverse charge basis. As the Export of services is exempted from payment of GST, do we need to pay GST on RCM basis for the per diem paid to employee on Foreign Travel.
    Thanks in Advance.

  10. Milind Lakhani says:

    As per my understanding, if your CHA issue a single invoice which includes all components which you mention then CHA will charge you GST, but CHA get reimbursement of Insurance payment,shipping line charges, stamp duty separately and give you all related documents then GST will not be charged by CHA.

    1. Ajay says:

      GST will not be charged by CHA, Are You Sure?…..

  11. Harsha says:

    Is GST is applicable for reimbursement of CFS charges, shipping line charges, stamp duty, Insurance and other to our Import Clearing agent?
    Kindly confirm.

  12. Murthy says:

    What about if we make reimbursement to our employee towards project work i.e.
    1. Local conveyance
    2. Food Bills
    3. Mobile Bill
    And also travel bills to clients such as flight ticket, train ticket, bus ticket, hotel stay, food expenses etc
    Is GST applicable ?

  13. PONNAPPAN PJ says:

    We are a manufacturer and registered under GST

    As per section 9(4) of GST Reverse Charge is applicable only on notified services by the GST Council, to may knowledge the Council has only 2 lists of GTA etc and Cashew etc

    But on what basis the news is going around that, we need to apply Reverse Charge on all our expenses (Services from un registered person) like Machinery Repair, cooly etc incurred in the course of business
    kindly clarify to my eamil

    No response to my post dated 20.08.2017

    1. Vishal Mali - CMA says:

      Section 9(4), says that in case of Registered Person who receives the supply from a Unregistered Person would be liable to pay CGST under Reverse Charge Basis. If your transactions with Registered dealer then no RCM will apply. But the supply should be a TAXABLE SUPPLY; no reverse charge shall be applicable in case of EXEMPT SUPPLY OR NON TAXABLE SUPPLY. If you will read the section 9(4) carefully you will see that is NO any words ‘Supply of Goods or Services or both notified by the Govt’ it means all the supply of goods or services or both will be covered under section 9(4), in other words we can say all the supply will be under reverse charge u/s 9(4). If a Registered person receives any supply from a unregistered person (whether notified by Govt. u/s 9(3) or not ) will subject to reverse charge u/s 9(4)

  14. S S Mittal says:

    A employee purchased some day to day office use items like stationary, chemical etc and paid GST with their cash memos and submit in cash account for adjusting in forest advance/ imprest advance. what are transaction like file for GST

  15. Ponnappan PJ says:

    We are a manufacturer and registered under GST

    As per section 9(4) of GST Reverse Charge is applicable only on notified services by the GST Council, to may knowledge the Council has only 2 lists of GTA etc and Cashew etc

    But on what basis the news is going around that, we need to apply Reverse Charge on all our expenses (Services from un registered person) like Machinery Repair, cooly etc incurred in the course of business
    kindly clarify to my eamil

    1. Nishant kumar says:

      Also pls confirm on Salary reimbursement components ? Employees avail reimbursements like Fuel reimbursement, Driver salary, books and periodicals, washing allowances etc which are part of their CTC – however not a part of taxable salaries. What is the way forward on these ?

  16. Murthy says:

    What about if we make reimbursement to our employee towards project work i.e.

    1. Local conveyance
    2. Food Bills
    3. Mobile Bill

    And also travel bills to clients such as flight ticket, train ticket, bus ticket, hotel stay, food expenses etc

    Is GST applicable ?

    1. Murthy says:

      What about if we make reimbursement to our employee towards project work i.e.
      1. Local conveyance
      2. Food Bills
      3. Mobile Bill
      And also travel bills to clients such as flight ticket, train ticket, bus ticket, hotel stay, food expenses etc
      Is GST applicable ?

      Please help me on this still i have not received any response.

  17. sivakumar says:

    have a question we are having a distibutionship for a company and we are giving expenses which are go to that companies temporary employees . and we are getting that amount from an thirdy party who are appointed as a service agent to taht company. can we charge any gst to the service provider of the company

    1. Narendra Goradia says:

      Yes

      GST will be applicable to you.

  18. M.S Balasubramanian says:

    Have a question I am a service provider and will have t o travel to mumbai How to treat My expenses which are reimbursible

  19. Nishant kumar says:

    What about salary structure with non taxable reimbursements like driver salary, fuel & maintenance, mobile bill reimbursements etc ? will What will be the impact on employee availing these ?

  20. JYN says:

    what about petty cash expenses?
    Any impact on them?

    1. Narendra Goradia says:

      GST will also applicable to petty cash expenses

  21. Kalpesh says:

    We have paid rent for Company Guest House to individual more than Rs. 20 lacs please confirm GST applicable or not ?

    1. Rajeshkumar says:

      Yes GST will be applicable @18%.

  22. Mayur Babaria says:

    if we are giving amount to our Employee against Reimbursement of Exp. at that time what is the liability of GST Payable at that time

    Please Share

    1. Yogesh Baheti says:

      Company must have to pay RCM on reimbursement of expenses incurred by their employee.

  23. Mahendra Thakor says:

    GST Applicable on reimbursement of Electricity duty provided by director and issued debit note for reimbursement.

    Please suggest…

    1. Preet Pal says:

      I checked with a GST Department’s Officer. If it is a statutory or govt levy, and the exact amount has been charged, then the Director has acted as a pure Agent, and no GST is applicable on it.

  24. rahul says:

    Pls Guide on a case.
    For Ex- A supplies good to B who is in another state. A do contract with a transporter C on behalf of B. That transport the goods from A to B . and Payment of transportation will be paid by A to C. After 45 days B will reimbruse the payment of transportation to A.

    Query
    1. Does A raise the Debit note in favor of B for reimburment of freight cost?
    2. If A may raise the debit note in favor of B for reimbursement of freight cost, then any other document may needs from B .like an undertaking to do contract with transporter?

    pls Reply

    1. on debit note raised by A to B GST applicable or not

  25. Preet Pal says:

    I receive rent for Industrial property. As per our Agreement, Electricity bill by Haryana State Electricity Board and water/ sewerage and maint charges by HSIIDC are to be paid by the party. Just so that he doesn’t default, I make the payments, and send him the receipts for reimbursement. What is the GST liability? Do I charge him GST on these services? Under what head, if at all?

  26. Akhilesh Jain says:

    If any consultant is giving services and for that he hires someone to handle client’s requirement on managing things and claims that amount from client.

    Total claim amount – 15000
    salary claim amount – 13000
    Net consultation fee – 2000

    On which amount GST to be charged from client if consultant is registered under GST.

  27. Vipul shah says:

    If head office give goods to branch for sale purpose and to show customer on regular basis in different state than Gst apply during supply to branch ?

    1. ANIL PANCHAL says:

      Absolutely, GST will apply and you have to charge IGST.

    2. rahul says:

      It is a case of stock transfer, IGST will be applicable on goods. moved from one state to another.

  28. Deepak S says:

    Hi, We are in training industry, normly we billling the reimbursement expenses like travel, hotel stay, etc to the client, just want check that, do we need to add the GST on this reimbursement expenses bill.

    1. Amit Surana says:

      Yes reimbursement of travel, hotel stay, etc to the client,GST will be applicable to you.

      1. Deepak S says:

        Thank you Amit, kindly help us with one more clarification.
        I m based in maharashtra and If i have received hotel stay in delhi bill is 10,000/- plus GST 28% @ 2800/- ( Sgst and Cgst ) total is 12800/-.
        Just need to confirm that , in reimbursement invoice on what amount do I need to charged 18% GST to the client 10,000 or 12800/- ?

        1. Preet Pal says:

          Logically, you would charge GST on the amount that you charge from the client. If you have charged 12800, you will charge GST on 12800. The 2800 GST amount paid by you would be your input GST, if you have got your bill in the Company’s name after following the proper procedure such as sharing your GST registration with the hotel etc. etc. Yes, its grown extremely complicated, but there, you have it so.

  29. Mahalakshmi says:

    Hi

    We are reimbursing the expenses like travel, food and other incidental expenses at actual our employees for there work assigned at client place.
    And also we are collecting the same expenses with the client providing the proof of the expenses.

    What is the impact on this reimbursement travel bill to client in GST.

    1. CA Sonal Dadhaniya says:

      Reimbursement of travel bill to client will attract GST at respective GST rate

      1. raghu says:

        Can you give us the any provision under GST. and share if any link in this regards.

  30. Rahul Jain says:

    Employee gives car on hire to company at Rs. 5000 per month. what would be GST Implications ??

    1. Nishant kumar says:

      What about salary structure with non taxable reimbursements like driver salary, fuel & maintenance, mobile bill reimbursements etc ? will What will be the impact on employee availing these ?

  31. Niraj Kumar says:

    i paid rent to land lord for commercial purpose. Is GST applicable ?

    1. Sunita says:

      If your rent cross threshold limit of Rs. 20 lacs in financial year then your are liable to pay GST @ 18%

  32. SANJIT BAGLA says:

    How it will be dealt under GST in case of reimbursement of expenses to employee by company?Expense like lodging,running expenses etc etc

  33. Gopal says:

    How service receiver will be able to get credit of GST paid by service provider when payment to service provider is made by pure Agent.
    This scenario exists specially in import of goods where payment to shipping line is made by CHA and then claimed from importer as reimbursement.

  34. MANOJ SURTI says:

    Holing company paid salary to employee of subsidiary company and raise debit note for salary recovery. In that case gst is applicable?
    Pl guide

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