CCI Online Learning
50% OFF in CA/CS/CMA Subjects

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Service Tax on reimbursement of expenses

This query is : Resolved 


Whether service tax is applicable on debit note raised on group companies for expenses incurred on there behalf like travelling, staff welfare, mobile expenese. We are not providing any taxable service to these companies.

Hi Anand,


Since you are not providing any taxable services

please refer this

‘Out of pocket’ expenses incurred are includible

The service provider often claims reimbursement of certain expenses incurred by him (like travelling, boarding and lodging, etc.) while providing a taxable service. These are often termed as ‘out of pocket’ expenses.

Department had clarified that out of pocket expenses like travelling, boarding and lodging on reimbursable basis are not subject to service tax. Assessee will have to provide documentary evidence substantiating his claim from the gross amount. It is clarified that this is applicable in respect of all the services - Pune-I Commissionerate TN 8/98-ST dated 13-10-1998 - parallel Indore TN 5/98-ST dated 14-10-1998.

This position will now not apply under the new Valuation Rules and all such expenses will be includible in ‘value’ of taxable service. All earlier departmental circulars regarding valuation have been withdrawn as per para 4.1.13 of MF(DR) circular No. B1/4/2006-TRU dated 19-4-2006.

Para 4.1-7 of MF(DR) circular No. B1/4/2006-TRU, dated 19-4-2006, reads as follows ‘Value for the purpose of charging service tax is the gross amount received as consideration for provision of service. All expenditures or costs incurred by the service provider in the course of providing a taxable service forms integral part of the taxable value and are includible in the value. It is not relevant that various expenditure or costs are separately indicated in the invoice or bill issued by the service provider to his client’.

The Finance Act, 2006, has brought about major changes in the principles of determination of the value of taxable services. Valuation of taxable services is now governed by the newly substituted Section 67 of the Finance Act, 1994, read with the Service Tax (Determination of Value) Rules, 2006 (hereinafter referred to as Valuation Rules).

As per Rule 5 of the Valuation Rules, whenever any expenditure or costs are incurred by the service provider in the course of providing taxable services, all such expenditure or costs shall be treated as consideration for the taxable services so provided or to be provided and shall be included in the value for the purpose of charging service tax on the said services.

This would mean that out-of-pocket expenses incurred by the service provider for the provision of services and charged to and recovered from the recipient of the services will be part of the value of taxable services and will be charged to service tax.

bJust a thought process and I thought of sharing it with you

I was reading an article on Reimbursement of group companies which is an unavoidable process and ofcourse a contetious issue.

After a fair reading I have the following views

Reimbursement of Expenses among group companies [subsidiary] would now, according to my understanding will attract service tax in view of the enlarged definition of BSS and would be covered under the administrative services

This is because the words mentioned in the said definition “operational assistance for marketing” has now been substituted with the words “operational or administrative assistance in any manner.”

Therefore reimbursement of expense like air fare, hotel stay paid by one and claimed as reimbursement from the subsidiary through debit note would attract service tax

If you could possibly express your views on this

Service tax include all bill amount means it consists pocket expenses

With recent amendment in section 67 of act read with service tax (determination of value) rules 2006, reimbursment of expenses is covered by the service tax, unless services are provided in the capacity of pure agent. You can watch complete details here

You need to be the querist or approved CAclub expert to take part in this query .

Click here to login now

Similar Resolved Queries :

Trending Tags
GST Live Class    |    x