Service tax on reimbursement for salary paid

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 January 2011 While working with client, I came a across one practical situation of service tax liability on reimbursement. Please suggest a correct answer to decide in below situation.

Situation:

X a company engaged in retailing business. X purchases apparels of different brands from several vendors for selling it out in its store. For that, X have an agreement with all vendors to retain the margin on selling amount to be paid to them (It seems like consignment sales, but it is a regular purchases and not on consignment). As per the agreement all vendors should send their own staff to sell their product in counter. If in case, vendor fails to give staff to sell the product in counter, X should depute its own staff and vendor should reimburse the cost of this staff. X deputed few staffs and charging to vendor for the cost of these staff (only the amount paid to staff). Should X liable to collect and pay the service tax on this? If X is not a specific service provider in man power recruitment and supply, is it makes any difference (X has not registered for this services)?

Please any one give me correct answar, either case it will be,but with case law if it avilable.

Thanks & Regards,
Gopal Gaonkar

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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15 January 2011 Threshold limit for service tax registration is Rs.10 Lac, If Mr X is not sepecific service provider in man power recruitment and his services value regarding for such is not exceed Rs.10 Lac, then he need not require to charge service tax on it.

Querist : Anonymous

Querist : Anonymous (Querist)

15 January 2011 Thank You. If x is already having service tax registration, but not for man power recruitment/ outsoursing.In such a case, what is the tax effect? ( Salary reimbursement will not be exceeding Rs.40,000 in a month) can you please reply this?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Great question! Here's how service tax applies to **reimbursement of salary paid to deputed staff** in your scenario:

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### Key points:

1. **Reimbursement vs. Service:**
If Company X **only recovers the exact salary cost** paid to its staff from the vendor (without any markup or profit), this is generally treated as **reimbursement** and **not a separate service**.

2. **No Separate Service Tax on Reimbursement:**
Since no additional service (like manpower supply or recruitment) is being provided and X is just recovering expenses, **service tax should not be charged on this reimbursement amount**.

3. **If X is Registered for Service Tax (other than manpower supply):**

* Reimbursement of salary (without markup) is excluded from taxable value under service tax rules.
* So even if X has service tax registration, the reimbursement amount should not be considered for service tax calculation.

4. **If X is providing manpower supply services:**

* If X was actually providing manpower supply services (with supervision and control of staff) and charging fees for it, service tax would be applicable on the service charges (not on pure reimbursement).
* But in your case, the vendor's own staff are supposed to work, and X is deputing its staff **only if vendor fails to provide staff**.
* If the reimbursed salary amount is small (like Rs. 40,000/month), and if X’s total value of such services is below threshold (Rs. 10 lakhs), then service tax registration or payment may not be required.

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### Summary:

| Condition | Service Tax on Salary Reimbursement? |
| ------------------------------------- | ------------------------------------------------------------- |
| Pure reimbursement without markup | No service tax on reimbursed amount |
| If providing manpower supply service | Taxable on service value (fees charged), not on reimbursement |
| If total value < threshold (10 lakhs) | No registration or service tax liability |

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### Case law and notifications:

* As per **Service Tax Rules**, reimbursement of expenses which do not amount to provision of service is excluded from taxable value.
* **Notification No. 30/2012-ST** clarifies treatment of reimbursements.
* In various Advance Rulings and Tribunal decisions, pure reimbursements (without markup) have been held as non-taxable.

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If you want, I can help draft an official interpretation letter or detailed note based on current law. Would you like that?

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