How do company a raise invoice for reimbursement on b?

This query is : Resolved

Rajen (Querist)
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01 August 2017 Hi,

We are into typical type of business, where entire our collection is not equal to revenue. Let me give a hypothetical example - We are company A and we are providing service to company B. Let's assume that total money that we collect from company B is Rs.5,000. Out of this, Rs.1,000 is revenue of company A, and remaining amount of Rs.4,000 is just collected and passed on to another Company C, and hence, it is treated as liability. So, in this case, accounting entries pre-GST were as follows:

Dr. Company B Rs.5,000
Cr. Revenue Rs.1,000
Cr. Company C Rs.4,000
(Rs.1,000 is inclusive of tax, and hence, it will be split accordingly while posting actual entries)

I agree that we will have to put SAC code on our invoice for Rs.1,000 which is going to be treated as our revenue. However, with regard to Rs.4,000 (which is not our revenue at all!), how should this be shown on invoice, and how will it impact on GST compliance procedures?

Is there any suggestions from GST compliance point of view?

Regards,
Rajen

Rajen

Rajen (Querist)
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04 August 2017 Hello Experts,

Does anyone have appropriate query?

Thank you!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 In GST compliance, handling invoices where part of the amount is collected on behalf of another company requires careful attention to ensure accurate reporting and tax compliance. Here’s how you can handle such scenarios:

### **Understanding the Scenario**

- **Company A** provides a service to **Company B** and collects a total of ₹5k
- Out of this amount, ₹1k is revenue for Company A, and ₹4k is collected on behalf of **Company C**.

### **Accounting Entries Pre-GST**

As you outlined, the accounting entries pre-GST would be:

- **Dr. Company B** ₹5k
- **Cr. Revenue** ₹1k
- **Cr. Company C** ₹4k

The revenue amount of ₹1k includes GST, and the ₹4k amount is treated as a liability.

### **GST Compliance for Invoice**

**1. **Invoice for Revenue Portion**

For the ₹1k portion which is Company A’s revenue, you will issue an invoice to Company B with the applicable GST.

**Invoice Details:**
- **Invoice Amount**: ₹1k (excluding GST)
- **GST**: Apply the relevant GST rate (e.g., 18% GST on ₹1k = ₹180)
- **Total Invoice Amount**: ₹1k + ₹180 = ₹1,180

**2. **Handling the Reimbursement/Pass-Through Amount**

For the ₹4k portion, which is not your revenue but rather a pass-through to Company C, you will handle it as follows:

- **You do not need to issue a separate invoice to Company B for the ₹4k amount**, because this is not your revenue.
- You should, however, account for this amount in your financial records as a liability to Company C.

**3. **Documentation and Compliance**

Even though you do not issue an invoice for the ₹4k amount, you should ensure the following:

- **Documentation**: Maintain proper documentation of the transaction showing that the ₹4k is collected on behalf of Company C. This can include a separate note or agreement with Company C regarding this transaction.
- **GST Compliance**: Ensure that your GST returns correctly reflect the revenue portion (₹1k) and any GST paid/collected.
- **Reconciliation**: Ensure that Company C’s records are in sync with yours for accurate reconciliation.

**4. **Implications for GST Returns**

- **Revenue Reporting**: In your GST return (GSTR-1), report the ₹1,000 as taxable revenue with the appropriate GST rate.
- **Pass-Through Amount**: The ₹4,000 pass-through amount does not affect your GST return directly but should be documented properly for clarity and compliance.

**5. **Communication with Company C**

Ensure that Company C is aware of the transaction and that they issue their invoice or documentation for the ₹4,000 amount, if applicable. This helps maintain transparency and ensures that all parties involved are compliant with GST regulations.

### **Summary**

1. **Issue a proper invoice** for the ₹1,000 revenue with applicable GST.
2. **Document the ₹4,000 pass-through** as a liability and maintain proper records.
3. **Ensure GST compliance** by correctly reporting the revenue portion and maintaining proper documentation.

**Recommendation:** For complex scenarios or further clarification, consider consulting a GST professional or tax advisor to ensure compliance and proper handling of all accounting and GST-related aspects.

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