04 December 2008
Dear Sir i hv a urgent query plz resolved it. there is a pvt ltd co which parant co is USA Co.A team of Delegats from parant co(USA) come to India.All the expenses which is incurred by Indian Co on Delegates is re-imbursed by Parant co. Now my Que is that what will be the ACCOUNTING TREATMENT of this Exp and re-imbursement and ANY TDS SERVISE TAX FBT LIABILITY ATTRACTS such as Hotel exp, Hiring of motor and chartered Plane etc. when money will be reimbursed by parant company from foriegn then any FEMA Compliance attracts. plz resolved it IN DETAIL. Thanks
24 July 2024
In the scenario where a private limited company in India incurs expenses on behalf of a delegation from its parent company in the USA, and these expenses are later reimbursed by the parent company, here’s how the accounting treatment, tax implications, and FEMA compliance would typically apply:
### Accounting Treatment:
1. **Expense Incurred by Indian Pvt Ltd Company:** - The expenses incurred by the Indian company on behalf of the delegation (e.g., hotel expenses, motor hiring, chartered plane) are initially recorded as expenses in the books of the Indian company. These expenses should be supported by proper invoices and documentation.
2. **Reimbursement by Parent Company (USA):** - When the parent company reimburses these expenses, the Indian company should account for it as a reimbursement of expenses. This reimbursement should not be treated as revenue but rather as an adjustment to the initial expense accounts.
### Tax Implications in India:
1. **Service Tax (GST):** - Under the Goods and Services Tax (GST) regime in India, reimbursement of expenses generally does not attract GST. The Indian company should ensure that proper documentation is maintained to substantiate that the reimbursement is purely for expenses incurred on behalf of the parent company.
2. **TDS (Tax Deducted at Source):** - Generally, reimbursement of actual expenses does not attract TDS under Indian income tax laws, provided it is properly documented and not in the nature of income. However, if there are any management fees or other charges included in the reimbursement, TDS provisions may apply on such components.
### FEMA Compliance:
1. **Reimbursement from Foreign Parent Company:** - When the parent company in the USA reimburses the Indian company for these expenses, it typically involves a transfer of foreign currency into India. As per FEMA (Foreign Exchange Management Act) regulations, such remittances should be routed through authorized banking channels.
2. **Reporting to Authorized Dealer (AD Bank):** - The Indian company should report the receipt of foreign currency from its parent company to an Authorized Dealer (AD Bank) within a specified time frame. This reporting is usually done through prescribed forms such as Form A2 or any other applicable form for receipt of foreign remittances.
3. **Documentation and Compliance:** - Proper documentation, including invoices, agreements, and proof of expenses incurred, should be maintained by the Indian company to substantiate the reimbursement received from the parent company. This documentation is essential for audit and compliance purposes.
### Conclusion:
- **Accounting Treatment:** Expenses should be recorded initially as expenses in the Indian company's books and adjusted upon reimbursement by the parent company. - **Tax Implications:** Generally, reimbursement of actual expenses does not attract GST or TDS, but proper documentation is crucial. - **FEMA Compliance:** Reimbursement from the parent company in foreign currency should comply with FEMA regulations, including reporting to AD Bank and using authorized banking channels.
For specific guidance tailored to your company’s situation, it’s recommended to consult with a qualified chartered accountant or tax advisor who can provide detailed advice considering all relevant factors and regulations applicable to your case.
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