Out of pocket expenses

This query is : Resolved 

25 March 2008

Sir "out of pocket expenses" is chargeable to FBT if not included in audit fees of chartered.
What's the exact status of chargeability of out of pocket expenses in respect of service tax as well as FBT.
Recommend the favourable action which should be followed to provide saving to our client.

ur response will definately give me edge.

Thanx in advances.

Jitender (Expert)
25 March 2008

out of exp are liable to fbt who incurs it. reference guidance note by ICAI.
although it should be beared by ca & service tax is to charged on it and then should be claimed from clients. & fbt should be paid by ca in the above mentioned case.

Ravi Jagetiya(CA Final) (Querist)
26 March 2008

Hi jitender my client is incurring such expenditure, who will be liable for FBT & service tax. Whether both service tax & FBT will be paid on such expenses. (It is provided in FBT law that it is leviable to client only & only not included in auditors remuneration.)

Please give me more grip to this

Really obliged to u

Dayal (Expert)
03 April 2008


I state hereunder the exact position of Rule 5(2) that has been held by the Act with respect to reimbursements

The entire amount claimed as reimbursement towards the expenses will be subject to levy of service tax including the service charges, unless there is an agreement to establish that the expenses are incurred on account of customer and xyz being appointed agent for payment of expenses on his account.

If the agreement establishes that third party payments as above are made by XYZ on customers account then and only then the service charges will be subject to exemption from the levy of service tax

The concept of reimbursement has been done away with, in view of the new Valuation Rules, 2006 w.e.f 18/04/2006 which state that value shall be the gross amount charged for the service. Any expenditures or costs incurred by XYZL and paid by XYZ will be includable in the value, unless the above criteria of Agent is fulfilled in the agreement.

To cite an example,

For instance XYZ has availed Xerox / courier services, and both the service provider raise a bill on XYZ and XYZ pays the amount to the service providers of Xerox and courier , then this will not be considered as reimbursement, as the bills are in the name of XYZ

Now for instance in the same example above, if both the service provider of Xerox and courier agency raise a bill on the customer and it is paid by XYZ, then the XYZ has paid for the expenses as being appointed agent.

In the second case where the bills are in the name of the customer but paid by XYZ can be claimed as reimbursement.

Similarly say octroi paid, if the octroi receipt is in customers name then these can be claimed as reimbursement and no service tax is payable on such reimbursement

For FBT you need to seek advise from our learned friends

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