Service Tax on Reimbursement of Expenses
This query is : Resolved
11 August 2009
My friend tells me that PAN no should be compulsorily qouted if we remit above Rs. 49,999/- in cash to our SB Accounts . Is it so?
If yes, Can u tell me the source of such rule( i mean whether it is compulsory as per ITR Rule or RBI Guidelines or Circulars)
If yes, Can u tell me the source of such rule( i mean whether it is compulsory as per ITR Rule or RBI Guidelines or Circulars)
11 August 2009
Dear Sir
1)While I am placing a candidate, I have to incur Hotel Stay Expenses for conducting interview, I have to pay to the candidate reimbursement of his travel expenses i.e train or air fare etc. These are all the expenses will be incurred for and on behalf of the Client. The Client will repay the amount after producing the necessary bills to the client. Apart from that I will raise a proper service tax bill for the services rendered i.e placement cost to the client. That also the Client will pay. Since I am doing placement for higher position, it is become inevitable to do the same of entertaining these types of reimbursement of expenses, which normally the client has to undertake, on a good understanding between me and the client. The Client will ask us to do the same and reimburse it to me after production of bills.
Now my question is whether i have to pay the service tax for these reimbursement of expenses recd also? since i am a pure agent that's why i am asking this question. In this reimbursement of expenses I am not going to get anything. I am doing a post man work only.
I am fully paying service tax for my placement bill. And my bill to the client will not contain the reimbursement of expenses. The Reimbursement of Expenses will be submitted to the client, in the form of statement only, attaching with the necessary bills.
2)Some times I may be asked by my trade friend to share some of the expenses example sharing of data, for which the service provider will raise a service tax bill to me. I will share that bill to my trade bill, for which he will pay. Actually on this point we are the ultimate consumers on utilising the services of the service provider. Shall I have to pay the service tax for the amount given by my friend for sharing? since I am treating this also reimbursment of expenses?
3)Amount paid by the foreign client in foreign currency for reimbursment of expenses for placing a candidate to the foreign company. Is that Reimbursment of Expenses also is also Service Taxable?
kindly clarify
1)While I am placing a candidate, I have to incur Hotel Stay Expenses for conducting interview, I have to pay to the candidate reimbursement of his travel expenses i.e train or air fare etc. These are all the expenses will be incurred for and on behalf of the Client. The Client will repay the amount after producing the necessary bills to the client. Apart from that I will raise a proper service tax bill for the services rendered i.e placement cost to the client. That also the Client will pay. Since I am doing placement for higher position, it is become inevitable to do the same of entertaining these types of reimbursement of expenses, which normally the client has to undertake, on a good understanding between me and the client. The Client will ask us to do the same and reimburse it to me after production of bills.
Now my question is whether i have to pay the service tax for these reimbursement of expenses recd also? since i am a pure agent that's why i am asking this question. In this reimbursement of expenses I am not going to get anything. I am doing a post man work only.
I am fully paying service tax for my placement bill. And my bill to the client will not contain the reimbursement of expenses. The Reimbursement of Expenses will be submitted to the client, in the form of statement only, attaching with the necessary bills.
2)Some times I may be asked by my trade friend to share some of the expenses example sharing of data, for which the service provider will raise a service tax bill to me. I will share that bill to my trade bill, for which he will pay. Actually on this point we are the ultimate consumers on utilising the services of the service provider. Shall I have to pay the service tax for the amount given by my friend for sharing? since I am treating this also reimbursment of expenses?
3)Amount paid by the foreign client in foreign currency for reimbursment of expenses for placing a candidate to the foreign company. Is that Reimbursment of Expenses also is also Service Taxable?
kindly clarify
11 August 2009
It is compulsory if cash deposit over 50,000/-
12 August 2009
12.08.09, Wednesday.
Regarding my querry dt 11.8.09 on Service tax on reimbursement of expenses. When I see the answer it is just mentioned the querry is answered. I have not seen any answer. Please help me where is the answer
or please reply.
Regarding my querry dt 11.8.09 on Service tax on reimbursement of expenses. When I see the answer it is just mentioned the querry is answered. I have not seen any answer. Please help me where is the answer
or please reply.
01 August 2024
To NAGARAJAN RAJAGOPALAN (Querist) ### Clarification on Service Tax and Reimbursement of Expenses
The issues you've raised pertain to the applicability of service tax on reimbursement of expenses, particularly when you are acting as a pure agent for your clients. Here is a detailed explanation addressing each of your points:
#### 1. Reimbursement of Expenses Incurred on Behalf of Client
**Scenario:**
- You incur expenses for hotel stay and travel on behalf of a candidate for a client.
- The client reimburses you for these expenses upon production of bills.
- You also raise a separate invoice for placement services, which includes service tax.
**Pure Agent Concept:**
- As per the concept of a "pure agent" under service tax laws (Rule 5(2) of Service Tax (Determination of Value) Rules, 2006), a pure agent is a person who:
1. Enters into a contractual agreement with the recipient of service to act as their pure agent to incur expenses.
2. Does not use the goods or services so procured by him for his own interest.
3. Receives only the actual amount incurred to procure such goods or services.
**Application:**
- If you meet the criteria of a pure agent, the reimbursement of expenses you receive from the client should not form part of the value of taxable services provided.
- The key conditions include:
1. The expenditure is incurred on behalf of the client.
2. The expenditure is specifically authorized by the client.
3. The expenditure is separately indicated in the invoice or statement presented to the client.
4. The actual amount incurred is reimbursed without any markup.
Since you mention that the reimbursement of expenses is presented as a separate statement and not included in your service invoice, these expenses should ideally not be subject to service tax, provided the pure agent criteria are met.
#### 2. Sharing of Expenses with Trade Friends
**Scenario:**
- You share expenses such as data services with a trade friend.
- The service provider raises a service tax bill to you, and you share this cost with your trade friend.
**Application:**
- If the shared expense is not incurred on behalf of your trade friend but is merely a cost-sharing arrangement, then it does not fall under the pure agent concept.
- As both you and your trade friend are the ultimate consumers of the service, the reimbursement you receive from your trade friend should not attract service tax, provided it is purely a reimbursement without any markup.
- However, if you are raising an invoice to your trade friend for the shared cost, you should include service tax on that invoice as it would be considered a service provided by you.
#### 3. Reimbursement of Expenses by Foreign Client
**Scenario:**
- You incur expenses for placing a candidate for a foreign client.
- The foreign client reimburses these expenses in foreign currency.
**Application:**
- Reimbursement of expenses from a foreign client would follow the same principles as domestic reimbursement if you are acting as a pure agent.
- If the pure agent criteria are met, such reimbursements should not be included in the taxable value for service tax purposes.
- Additionally, export of services rules should be examined to determine if the placement services themselves qualify as an export, which may have implications for service tax liability.
### Conclusion
1. **Reimbursement of expenses for hotel stay and travel on behalf of a client:** Not subject to service tax if you are acting as a pure agent.
2. **Sharing of expenses with trade friends:** Generally not subject to service tax if it is a cost-sharing arrangement without markup.
3. **Reimbursement of expenses by a foreign client:** Not subject to service tax if you are acting as a pure agent, and the placement services themselves may be considered an export of services.
To ensure compliance, it's recommended to:
- Clearly document your role as a pure agent in agreements with clients.
- Maintain detailed records of expenses incurred and reimbursements received.
- Consult with a tax advisor to review specific transactions and ensure all conditions for treating reimbursements as non-taxable are met.
### References
- Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.
- Service Tax Circulars and Notifications issued by the Central Board of Indirect Taxes and Customs (CBIC).
The issues you've raised pertain to the applicability of service tax on reimbursement of expenses, particularly when you are acting as a pure agent for your clients. Here is a detailed explanation addressing each of your points:
#### 1. Reimbursement of Expenses Incurred on Behalf of Client
**Scenario:**
- You incur expenses for hotel stay and travel on behalf of a candidate for a client.
- The client reimburses you for these expenses upon production of bills.
- You also raise a separate invoice for placement services, which includes service tax.
**Pure Agent Concept:**
- As per the concept of a "pure agent" under service tax laws (Rule 5(2) of Service Tax (Determination of Value) Rules, 2006), a pure agent is a person who:
1. Enters into a contractual agreement with the recipient of service to act as their pure agent to incur expenses.
2. Does not use the goods or services so procured by him for his own interest.
3. Receives only the actual amount incurred to procure such goods or services.
**Application:**
- If you meet the criteria of a pure agent, the reimbursement of expenses you receive from the client should not form part of the value of taxable services provided.
- The key conditions include:
1. The expenditure is incurred on behalf of the client.
2. The expenditure is specifically authorized by the client.
3. The expenditure is separately indicated in the invoice or statement presented to the client.
4. The actual amount incurred is reimbursed without any markup.
Since you mention that the reimbursement of expenses is presented as a separate statement and not included in your service invoice, these expenses should ideally not be subject to service tax, provided the pure agent criteria are met.
#### 2. Sharing of Expenses with Trade Friends
**Scenario:**
- You share expenses such as data services with a trade friend.
- The service provider raises a service tax bill to you, and you share this cost with your trade friend.
**Application:**
- If the shared expense is not incurred on behalf of your trade friend but is merely a cost-sharing arrangement, then it does not fall under the pure agent concept.
- As both you and your trade friend are the ultimate consumers of the service, the reimbursement you receive from your trade friend should not attract service tax, provided it is purely a reimbursement without any markup.
- However, if you are raising an invoice to your trade friend for the shared cost, you should include service tax on that invoice as it would be considered a service provided by you.
#### 3. Reimbursement of Expenses by Foreign Client
**Scenario:**
- You incur expenses for placing a candidate for a foreign client.
- The foreign client reimburses these expenses in foreign currency.
**Application:**
- Reimbursement of expenses from a foreign client would follow the same principles as domestic reimbursement if you are acting as a pure agent.
- If the pure agent criteria are met, such reimbursements should not be included in the taxable value for service tax purposes.
- Additionally, export of services rules should be examined to determine if the placement services themselves qualify as an export, which may have implications for service tax liability.
### Conclusion
1. **Reimbursement of expenses for hotel stay and travel on behalf of a client:** Not subject to service tax if you are acting as a pure agent.
2. **Sharing of expenses with trade friends:** Generally not subject to service tax if it is a cost-sharing arrangement without markup.
3. **Reimbursement of expenses by a foreign client:** Not subject to service tax if you are acting as a pure agent, and the placement services themselves may be considered an export of services.
To ensure compliance, it's recommended to:
- Clearly document your role as a pure agent in agreements with clients.
- Maintain detailed records of expenses incurred and reimbursements received.
- Consult with a tax advisor to review specific transactions and ensure all conditions for treating reimbursements as non-taxable are met.
### References
- Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.
- Service Tax Circulars and Notifications issued by the Central Board of Indirect Taxes and Customs (CBIC).
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Is this income indian or foreign income?
- ITC temporary reversal and reclaim
- GST on export of services and Input Credit
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- Inventory of finished goods
- Applicable TDS rate for sale of property in Nov 2024
- Confusion around Form 26QB fields
- GST ON EXPORT COMMISSION
- RCM INVOICING FROM NOV-2024
- Tds on building rent monthly
- Disallowance of Section 43B(h) to sez units
- Regarding Waiver of Interest levied u/s 50 of PGST/CGST Act
- LAST YEAR 2022-23 ITC IN NEXT YEAR 2023-24 REPORITNG IN GSTR-9
- MIS MATCH OF INVOICE NUMBER
- IGST Credit-Show cause notice issued-confusion
- Issue of gst e invoice
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
- 133(6) DIN INVALID format error - ->WHERE TO REPLY 133(6) notice?
- Query for dubts
Trending Online Classes
CAclubindia
