TDS on Reimbursement

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Nazir (Querist)

14 August 2009 Hi Guys,

Let me decribe you the case, we r a software co. we have a investor who have funded to our co. initially they were conducted "Due Deligence Audit" of our co. and they paid audit fees to the auditor after deducting appropriate TDS on that, the fee was Rs 2 lac, now our investors want us to "reimburse" them the charges paid by them to auditor, here do we need to deduct TDS from their payment???

Some questions???

1. We have not received services directly from investors to whome we are reimbursing these money, so can we book as audit expenses???

2. This is not going to be revenue of investor as they are just transfering expenses to us their is no mark up any thing, here what TDS provision exactly say???

Requesting you to please give any back up to your response.

waiting for your reply.

Regards,
Nazir

Nazir

Nazir (Querist)

17 August 2009 any reply guys???

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

27 July 2025 Great question! Let me clarify the TDS treatment on **reimbursement of expenses** in your scenario:

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### Scenario Recap:

* Your investor paid audit fees **directly to the auditor**, deducting TDS.
* Now, the investor is claiming reimbursement of that audit fee from your company.
* Your company will pay the investor the same amount (no markup).

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### Your questions answered:

#### 1) Can you book this as audit expense?

* **No**, you should not book the reimbursement as audit expense because the service was not directly received by your company.
* The actual **audit expense was borne by the investor**.
* The reimbursement is just **a pass-through amount** — i.e., recovery of expense paid on your behalf.
* It should be booked as **"reimbursement payable" or "payable to investor"**, not as an expense.

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#### 2) Do you need to deduct TDS on reimbursement to the investor?

* **No TDS is required** on the reimbursement amount to the investor because:

* The investor is **not providing any service to your company**.
* You are merely reimbursing **expenses already incurred by them**.
* It is **not income or fees** paid to the investor.
* The original TDS was deducted by the investor **when paying the auditor** (the actual service provider).

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### Summary Table:

| Nature of Payment | TDS Deduction Required? | Reason |
| ----------------------------------------------- | -------------------------- | ----------------------------------- |
| Audit fees paid by investor (direct to auditor) | Yes (investor deducts TDS) | Payment for professional service |
| Reimbursement to investor | No | Pass-through of expense, not income |

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### Important Note:

* Maintain proper **supporting documents** like auditor’s invoice, proof of payment by investor, and reimbursement records to show this is just recovery of expenses.
* This will help if tax authorities query the transaction.

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If you want, I can help you draft the **accounting entries** and **supporting note** for this reimbursement transaction. Would you like that?

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