Reimbursement of Expenses

[Kaustubh Karandikar]

XYZ and PQR are related parties. Directors of XYZ Ltd. are using the Credit Card of PQR Ltd. The amount spent against the same is subsequently recovered by PQR from XYZ at actuals. Is PQR required to charge GST on this transaction?

[Amit Agrawal]

If same are purely financial transactions (i.e. loan given and repaid) with no charges for the facilitation, there will not be any supply involved. And hence, GST will not come into picture.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

To add to my last post to avoid confusion (if any):

Being a related party, please ensure that no ITC is claimed by PQR Ltd against GST charged (if any) EVEN by the bank and such charges with GST (plus interest charged by Bank, if any) is also recovered from XYZ at actual/s. In other words, it should be purely financial transaction in the books of PQR with no hit to any expense-accounts and no ITC availment there-against.

For my ex-facie views, I am also presuming that "supplier" (to whom payment is made through credit-card) is showing this as B2C transaction where recipient's name as PQR is not mentioned. In other words, PQR is not recipient of supplies (for whom payment is made through credit-card) for subject transactions under discussion but XYZ is.

P.S. To avoid risk of any dispute / litigation with fancy arguments / reasoning (i.e. on basis of some deemed supply between related parties with / without consideration etc.), it is always better to avoid such transactions al-together.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

If its only a payment arrangement, no GST liability.

[Ganeshan Kalyani]

In my view, an element of service emerges when an entity facilitates any activity for another entity. When there is service , GST is applicable.

AI Summary

GST on reimbursements: facilitation may attract tax while pure financial repayments between related parties do not. GST applies only if the recovery constitutes a taxable service; genuine financial transactions treated as loans/repayments with no consideration are not supplies and do not attract GST. Ensure recoveries are booked as financial transactions, avoid claiming Input Tax Credit on related charges, and document arrangements to mitigate risk of deemed-supply disputes arising from facilitation of payments between related parties.