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 Applicability on Related Party Transactions: No GST for Pure Financial Arrangements Without Service Element, No ITC for PQR XYZ Ltd. and PQR Ltd. are related parties, with directors of XYZ using PQR's credit card for expenses, which PQR later recovers from XYZ at cost. The query is whether GST should be applied to this transaction. Amit Agrawal suggests that if the transaction is purely financial with no facilitation charges, GST is not applicable, and PQR should not claim Input Tax Credit (ITC). Shilpi Jain agrees, stating no GST liability if it's just a payment arrangement. Ganeshan Kalyani, however, argues that if an element of service is involved, GST should be applied.