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Reimbursement vs service tax

Eswar Reddy S (CFO- at NHTF) (58270 Points)

13 July 2014

Dear Sir, Is service tax applicable on reimbursement ?

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2 Replies

CA and CMA Ravinder Singh (CA and CMA) (853 Points)
Replied 13 July 2014

no..its not applicable on re imbursement of expenses

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Nagendra Hegde (Chartered Accountant) (1948 Points)
Replied 15 July 2014

Rule 5 (1) of Service Tax (Determination of Value) Rules, 2006, specifically provides the clause for inclusion of cost or expenditure in value of taxable services. This deeming fiction created to consider all the expenditure or costs incurred by the service provider in the course of providing taxable services.

However Rule 5 (2) provides exclusion for those expenditure or costs incurred by the service provider as a pure agent of the recipient of the service subject to fulfilling various conditions specified there in. Hence if the service provider gets actual re imbursement of expenses incurred in the course of output service, then subject to the conditions specified in the rule, such expenses can be excluded while arriving the taxable value.

The Delhi High Court in case of Intercontinental Consultants and Technocrats P Ltd has down the provisions related to reimbursement as ultra-virus.