Budget Books

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


It's an audit season and all of us are busy in planning and executing audits under Companies Act, GST Act, and Income Tax Act. our Admin teams are gearing up to prepare professional charges through the GST invoices must be wondering about the treatment of reimbursement of out of pocket expenses to be collected from the clients.

Dictionary meaning of reimbursement - the act of paying back money to somebody which they have spent or lost.

In audit/advisory services reimbursement of expenses arises when a supplier incurs any expenses to undertake a transaction on behalf of the recipient who is supposed to incur such expenses on his own account.

Treatment of reimbursement expense under GST

The person who acts on behalf of someone can be termed as Agent. The term Agent/Pure Agent is not new to Indirect tax laws, this concept is been borrowed from the erstwhile service tax law under the" Determination of value rules 2006".

The relevance of Pure Agent under GST

"Rule 33 - Value of supply of services in case of pure agent" under Section 15 - Value of Taxable supply of CGST Act 2017, discusses the conditions for a supply to be considered as Pure agent supply and through an explanation, it defines "Pure agent".

Rule 33 and the explanation can be understood as under:

When a supplier incurs any expenditure or costs on behalf of the recipient during his supply of goods/services shall be excluded from the value of supply - if all the following conditions are satisfied, namely, -

  1. the supplier acts as a pure agent of the recipient of the supply when he makes the payment to the third party on authorization by such recipient;
  2. the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
  3. the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation - For the purposes of this rule, the expression "pure agent" means a person who-

  1. enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;
  2. neither intends to hold nor holds any title to the goods or services or both so procured or supplied as a pure agent of the recipient of supply;
  3. does not use for his own interest such goods or services so procured and receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Let's understand this with an example.

A chartered Accountant takes up income tax appeal services to represent his client in the Tribunal. On completion of his service, he issues an invoice for his supply with reimbursement of expenses incurred during rendering the service.

Sl. No

Components charged in the invoice

Amount in Rs.


Representation Charges



Tribunal Charges(Actual)



Traveling expenses



Certificate from an Expert on behalf of the recipient (Actual)




In the above explanation, the important thing to consider is, the pure agent does not use the goods/service he procures during his supply for his own interest and this condition needs to be determined from the terms of the contract. Even when the supplier mentions about the out of pocket expenses which he may incur during his supply as extra in his engagement letter, such expenses/supply should be an addition to the services he supplies on his own account.

In the above example availing the expert's service recipient behalf is an additional supply. Whereas traveling expenses incurred by the CA to represent his client shall be part of his responsibility to make himself available at the venue and procuring such service for his own interest shall not be construed as an addition to the service he agreed to render.

Another important aspect is when a pure agent procures any goods/service from the third party, he shall collect the actual expenses he has incurred. Any margin charged on the amount as availed from the third party shall disqualify to be called as pure agent transaction. In the above example if the CA charges extra for the certificate he obtains on behalf of his client then such transaction shall be subject to GST.

Few examples of the pure agent are:

  1. Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to the Registrar of Companies. The fees charged by the Registrar of Companies for the registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A's recovery of such expenses is a disbursement and not part of the value of supply made by A to B.
  2. Expenses incurred by Clearing & Forwarding agent and reimbursed by principal such as freight, godown charges.
  3. Income tax paid to the government on behalf of the client and collected subsequently.


Pure agent services are common and important for businesses as it eases the way businesses are conducted. It is also important to bear in mind about the GST implication while performing whenever such an act. The transaction should be undertaken adhering the conditions specified for such pure agents.

Source: GST Flyer, CGST Act 2017 and Rules.


Published by

Bhanu Prakash Rao
(Think Beyond Stay Ahead...!)
Category GST   Report

3 Likes   5 Shares   6339 Views


Related Articles


Popular Articles

IIM Indor
caclubindia books

CCI Articles

submit article