Gst applicability on reimbursement of internet charges by client

The reimbursement attracts GST as an incidental operational expense under Section 15(2)(c) because the connection is in your name, disqualifying it from the "pure agent" exemption under Rule 33.

Consequently, it forms part of your total taxable service value and is either taxable at 18% IGST or zero-rated if your freelancing qualifies as an export of service under an LUT.

Such reimbursement is taxable. Neither the concept of pure agent is applicable nor it is export of service. No need to further elaborate as already Well explained by Sh.Sadanand Bulbule, Sir.

Yes. Such reimbursement is a taxable turnover as per the provisions explained by Bulbule Sir.

What would constitute as "pure agent" exemption? Acting as only facilitator for payment of expense for the client and connection if it is in the name of client? Can you elaborate on that?

Kindly go through Rule 33 for understanding what supply will constitute a 'pure agent'.

33. Value of supply of services in case of pure agent.-

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation.- For the purposes of this rule, the expression "pure agent" means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Illustration.- Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to the Registrar of Companies. The fees charged by the Registrar of Companies for the registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A's recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

You may add:

Payment of MCA fees for client

GST payment on behalf of client

Income-tax paid on behalf of client

Electricity charges collected by landlord (exact amount without any mark-up)

Under GST law, expenses incurred by a supplier as a 'pure agent' of the recipient can be excluded from the value of supply. However, for a supplier to be considered a 'pure agent' under Rule 33 of the Central Goods and Services Tax Rules, 2017, several conditions must be met, including:

Entering into a contractual agreement with the recipient to act as a pure agent.

Not holding any title to the goods or services procured as a pure agent.

Not using such goods or services for your own interest.

Receiving only the actual amount incurred.

In your situation, as the internet service is registered in your name and used to perform your freelance work, it is unlikely that you are acting as a 'pure agent' for your foreign client in procuring the internet service. Instead, it is an input service for your business. Consequently, the reimbursement of internet charges would be considered an integral part of the overall value of the main freelance service you provide to the foreign client, rather than a separate supply of 'internet service' by you or an expense incurred as a pure agent.

Since your supply of services (including the reimbursed internet charges as part of the overall consideration) meets all five conditions as per Section 2(6) of the Integrated Goods and Services Tax Act, 2017 it qualifies as an 'export of services' under Section 2(6) of the Integrated Goods and Services Tax Act, 2017. As per Section 16(1) of the Integrated Goods and Services Tax Act, 2017, 'export of goods or services or both' is considered a 'zero-rated supply'. This means that no Integrated Goods and Services Tax (IGST) is leviable on such a supply.