GST applicability on reimbursement invoice

[milan bamal]

I have rented out my warehouse and I raise a rent invoice every month. I have paid the electricity bill myself, and now I am raising a reimbursement invoice for the same. Will GST be applicable on this reimbursement or not? Please explain with reasons

[KALLESHAMURTHY MURTHY K.N.]

Sir,

If you have been reimbursed for the same amount of electricity charges that you paid, but it is the liability of the lessee as per the agreement, then there will be no GST liability. If you have charged more than the actual electricity charges, you'll need to pay GST on the entire amount reimbursed.

[YAGAY andSUN]

GST applicability on reimbursement of electricity expenses depends on the nature of the transaction and the contractual arrangement between the parties.

Under the Central Goods and Services Tax Act, 2017, particularly Section 15, the value of supply includes any amount the supplier is liable to pay but which has been incurred by the recipient and not included in the price actually paid or payable. Further, Rule 33 of the CGST Rules, 2017 provides an exception for “pure agent” transactions.

If the electricity charges are recovered on actual basis and the supplier satisfies all conditions of a “pure agent” (i.e., the expense is incurred on authorization of the recipient, separately indicated in invoice, and no title or use of service is held by the supplier), then such reimbursement shall be excluded from the value of supply. In such case, GST will not be applicable on the electricity reimbursement.

However, if the conditions of a pure agent are not fulfilled, the reimbursement becomes part of the composite supply of renting of immovable property. Renting is a taxable supply under GST, and ancillary charges including utilities recovered from the tenant are treated as part of the consideration. Consequently, GST shall be leviable on the total amount, including electricity reimbursement.

It is also relevant that electricity per se is exempt from GST when supplied by an electricity distribution utility. However, in landlord-tenant arrangements, the landlord is not acting as a utility provider. Therefore, unless structured as a pure agent transaction, exemption is not available.

In conclusion, GST is not applicable only if the reimbursement strictly qualifies under pure agent conditions; otherwise, it is taxable as part of rental supply.

[Ryan Vaz]

GST will generally be applicable on the electricity reimbursement if you are recovering it from the tenant along with rent, because it forms part of the value of supply of renting services.

Exception: GST will not apply only if you qualify as a pure agent under Rule 33, which is rarely satisfied in landlord-tenant electricity cases.

 

[Shilpi Jain]

In case you have got the exact amount that you paid as a reimbursement then you can regard this as a pure agent reimbursement, which would not be liable to GST.

Ensure that you have suitable clauses in your rental agreement in this regard.

[KASTURI SETHI]

Dear Querist,

Read the following decision of AAR West Bengal :-

2025 (3) TMI 160 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL - In re : Mega Flex Plastics Ltd.

 

[Pinnacle Tax Advisor]

will depend on the clause of the agreement, but generally getting reimbursement of electricty charges paid as pure agent is not liable for GST. Further, please note electicity generated through DG and supplied to tenant is laible for GST

[KALLESHAMURTHY MURTHY K.N.]

Supply of Electricity is exempted from GST. However, where the supply of electricity generated through DG serves as an ancillary and bundled supply, treated as a supply of service. Hence, GST attracts. Please refer to CBIC Circular No. 206/18/2023-GST dated 31st October, 2023.

AI Summary

Pure agent treatment governs GST on electricity reimbursement in landlord-tenant rentals, while bundled recoveries remain taxable. GST treatment of electricity reimbursement in a landlord-tenant arrangement depends on the contractual allocation of liability and whether the landlord qualifies as a pure agent. Where electricity charges are recovered strictly on actual basis and separately reflected in the invoice, the reimbursement may be excluded from the value of supply and not taxed separately. If the pure agent conditions are not met, the recovery forms part of the consideration for renting of immovable property and is taxable with the rent. Electricity supplied by a distribution utility remains exempt, but landlord reimbursements do not automatically get that exemption.