GST implication on reimbursement of expenses

[MEHAK GOEL]

As per the provision of GST law, value of supply of services includes ''reimbursement of expenses''. In other words, if any consideration is received as reimbursement from the customer, then GST liability would attract and to be charged on the invoice raised by the service provider.

However, reimbursement of expenses can be exempt in one case i.e. pure agent. We need to understand the meaning of Pure agent wherein law provides that value of expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply subject to certain conditions. The extract of rule 33 of CGST Rules, 2017, is reproduced as under:

(i)  The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient.

(ii) 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.

(iii)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.  

Explanation.- For the purposes of this rule, the expression ―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 supplied as pure agent of the recipient of supply.

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

(d) Receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

For example: Payment of statutory fees i.e. filing fee, court fees, etc are not liable to GST.

Hence, GST is applicable on reimbursement of expenses except reimbursement is in nature of pure agency.