New
February 20, 2023
By
Prudhvi Raj

Chargeability of GST on Reimbursement of Expenses

GST or Goods and Services Tax is a tax levied on the supply of goods and services. When it comes to reimbursement of expenses, there is often confusion regarding the applicability of GST. In this article, we will discuss the chargeability of GST on reimbursement of expenses.

What is reimbursement of expenses?

Reimbursement of expenses is a process where a person is reimbursed for the expenses incurred by them on behalf of someone else. This can include expenses related to travel, food, lodging, and other such expenses.

For example, if an employee of a company travels to a different city for work and incurs expenses for travel, food, and lodging, the company will reimburse the employee for these expenses.

Is GST applicable on reimbursement of expenses?

The answer to this question is not straightforward. Whether GST is applicable on reimbursement of expenses depends on certain factors.

1. Whether the expense is incurred as a pure agent

If the expense is incurred by a person as a pure agent, GST is not applicable on the reimbursement of such expenses. A person is considered a pure agent when:

1. The person makes payment to the supplier of goods and services on behalf of the recipient of supply

2. The person does not use the goods or services for their own interest

3. The person receives only the actual amount paid to the supplier as reimbursement

4. The person is authorized by the recipient of supply to make payment on their behalf

For example, if an employee of a company is sent to buy goods or services for the company and the employee pays for the goods or services, the company can reimburse the employee for the expenses incurred. In this case, the employee is considered a pure agent and GST is not applicable on the reimbursement.

2. Whether the expense is a part of the supply

If the expense is a part of the supply of goods or services, GST is applicable on the reimbursement of such expenses. This is because the reimbursement of such expenses is considered as a part of the consideration for the supply.

For example, if a company provides accommodation to its employee during a business trip and the company reimburses the employee for the expenses incurred, GST will be applicable on the reimbursement. This is because the accommodation provided to the employee is a part of the supply of services by the company to its client.

3. Whether the expense is incurred on behalf of the recipient of supply

If the expense is incurred on behalf of the recipient of supply, GST is not applicable on the reimbursement of such expenses. This is because the reimbursement of such expenses is not considered as a part of the consideration for the supply.

For example, if a company hires a taxi for its employee to travel to a client's office and the company reimburses the employee for the expenses incurred, GST will not be applicable on the reimbursement. This is because the expense is incurred on behalf of the recipient of supply and not as a part of the supply itself.

Conclusion

To sum up, the chargeability of GST on reimbursement of expenses depends on various factors such as whether the expense is incurred as a pure agent, whether it is a part of the supply, and whether it is incurred on behalf of the recipient of supply. It is important to understand these factors to determine whether GST is applicable on the reimbursement of expenses.

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