Reimbursement of expenses from foreign company
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
31 May 2016
Hi,
If Indian company paid expenses on behalf of foreign company (Parent Company),
1) whether service tax applicable ?
2) Raising Invoice at the end of month to parent company in this case which word should be used in invoice (service provided or Reimbursement of Expenses ).
Thanks in advance.
If Indian company paid expenses on behalf of foreign company (Parent Company),
1) whether service tax applicable ?
2) Raising Invoice at the end of month to parent company in this case which word should be used in invoice (service provided or Reimbursement of Expenses ).
Thanks in advance.
31 May 2016
service tax not applicable, its only reimbursement of exp.
01 June 2016
but suppose if profit percentage add on the total exp then?
20 July 2025
Great question — let’s walk through this carefully.
You're dealing with reimbursement of expenses by an Indian company on behalf of its foreign (parent) company, and want to understand Service Tax implications (under the pre-GST regime) as well as wording in the invoice.
📌 Case 1: Reimbursement with No Profit or Markup
If the Indian company only pays expenses on behalf of the foreign parent and recovers exactly that amount, then:
This can potentially qualify as a pure agent transaction.
In that case, Service Tax is not applicable on the reimbursed amount.
✅ Conditions:
Must satisfy the conditions under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, for pure agent.
The Indian company must:
Act as a pure agent for the foreign company.
Pay expenses on behalf of the foreign entity without markup.
Do not use or consume those services for your own business.
Clearly reflect the expense as reimbursement in the invoice and not part of service fees.
✅ Invoice wording:
You should use the term:
👉 “Reimbursement of expenses incurred on your behalf as pure agent.”
📌 Case 2: Reimbursement + Markup / Profit Margin Added
If you add a profit percentage or any markup on expenses, then:
The reimbursement becomes part of the overall consideration for services rendered.
The entire value, including markup and reimbursed expenses, becomes taxable under Service Tax.
❌ No pure agent treatment is allowed in this case.
✅ Service Tax applicable on:
Total invoice value (expenses + profit margin).
✅ Invoice wording:
You should use:
👉 “Professional/Management/Support services including expense recovery with markup”
(Avoid calling it “pure reimbursement” if markup is added.)
You're dealing with reimbursement of expenses by an Indian company on behalf of its foreign (parent) company, and want to understand Service Tax implications (under the pre-GST regime) as well as wording in the invoice.
📌 Case 1: Reimbursement with No Profit or Markup
If the Indian company only pays expenses on behalf of the foreign parent and recovers exactly that amount, then:
This can potentially qualify as a pure agent transaction.
In that case, Service Tax is not applicable on the reimbursed amount.
✅ Conditions:
Must satisfy the conditions under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, for pure agent.
The Indian company must:
Act as a pure agent for the foreign company.
Pay expenses on behalf of the foreign entity without markup.
Do not use or consume those services for your own business.
Clearly reflect the expense as reimbursement in the invoice and not part of service fees.
✅ Invoice wording:
You should use the term:
👉 “Reimbursement of expenses incurred on your behalf as pure agent.”
📌 Case 2: Reimbursement + Markup / Profit Margin Added
If you add a profit percentage or any markup on expenses, then:
The reimbursement becomes part of the overall consideration for services rendered.
The entire value, including markup and reimbursed expenses, becomes taxable under Service Tax.
❌ No pure agent treatment is allowed in this case.
✅ Service Tax applicable on:
Total invoice value (expenses + profit margin).
✅ Invoice wording:
You should use:
👉 “Professional/Management/Support services including expense recovery with markup”
(Avoid calling it “pure reimbursement” if markup is added.)
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