Expenses incurred by service provider acting as a PURE AGENT shall be excluded from value of supply if some specified conditions are fulfilled.It should be noted that you cannot exclude expenses incurred on behalf of Recipient of Service unless following conditions are specified.
Relevant Section and Rule –
Section 15 of CGST Act, 2017 & Rule 7 of the valuation rules
The conditions which should be satisfied before excluding reimbursements are:
1. The Service Provider acts as a Pure Agent of the Recipient of the Service, when he makes payment to the third party for the services procured as the contract for supply made by third party is between third party and the recipient of supply;
2. The recipient of supply uses the services so procured by the Service Provider in his capacity as Pure Agent of the Recipient of Service.
3. The Recipient of Service is liable to make payment to the third party;
4. The Recipient of Service authorizes the Service Provider to make payment to third party on his behalf.
5. The Recipient of Service knows that the services, for which payment has been made by the Service Provider, shall be provided by the third party.
6. The payment made by the Service Provider on behalf of the Recipient of supply has been separately indicated in the invoice issued by the Service Provider to the Recipient of Service;
7. The Service Provider recovers from the Recipient of Service only such amount as has been paid by him to the third party; and
8. The Services procured by the Service Provider from the third party as a Pure Agent of the Recipient of Service, are in addition to the supply he (Service Provider), provides on his own account.
Explanation. – For the purposes of this Rule 7, “Pure Agent” means a person who: –
The first condition is that supplier of service should act as a Pure Agent of his client/customer. If the person is not providing services as a Pure Agent then he cannot deduct expenses incurred on behalf of customer/client from value of supply of services.
He can deduct only those payments which were supposed to be made by your customer and parties involved in transaction knew the fact that it is your customer who is supposed to make payment.
The Recipient of Service should have authorized the Service Provider to make payments on his behalf to third party and the Service Provider should:
Hope the above Article serve your purpose !!
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