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

Rule 7 of the Valuation Rules  is the applicable Rule to ascertain whether expenses incurred by Service Provider acting as Pure Agent should be excluded or not.

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: –

  • Enters into a contractual agreement with the Recipient of Service to act as his Pure Agent to incur expenditure or costs in the course of supply of goods or services or both;
  • Neither intends to hold nor holds any title to the goods or services or both so procured or provided as Pure Agent of the Recipient of Service;
  • Does not use for his own interest such goods or services so procured; and
  • Receives only the actual amount incurred to procure such goods or services.

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:

  • Specify this amount separately in his invoice,
  • Recover from client only the actual amount paid,
  • The payment is in addition to other services he provides to his client.
  • Not hold title of goods or services procured on behalf of his client,
  • Not use goods or services for his personal use.

Hope the above Article serve your purpose !!

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Company: CA Rajendra Y. Padhye
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  1. K.RENGARAJAN says:



    Our company is engaging in MAGAZINE Subscription and is fully exempted from GST
    Please clarify my following doubts

    1.We have received advance subscription of Rs.1200/- plus Rs.400/-as Postal charges (Total Rs.1600)for 12 month issues from one client in Punjab on 01.01.2020 in order to send the magazine every month thro.Registerd post to that client and postal charges Is fully received in advance from client and it is not company expense.
    We recorded our client subscription period from Jan2020 to dec2020 for 1 year

    Journal entry were passed as below for above advance received with postal charges
    i.Bank account Dr. Rs.1600/-
    ii. Advance subscription Cr. Rs.1600/-
    (Being Subscription advance received with postal charges from Punjab client)

    2.We generated Bill of supply without GST on 01.01.2020 as below
    i.No.of magazine sent-for January2020 issue(1copy) Rs.100/-(Rs.1200/12months)
    ii.Add: Registered postal charges Rs.36/- Rs.136/-(Rs.100+Rs.36)
    iii.Grand total
    3.JV Entries were passed for above Bill of supply as below on 01.01.2020
    i.Advance subscription Dr. Rs.136/-
    ii.Subscription Income Cr. Rs.100/-
    iii.Postal charges Cr. Rs.36/-
    (Being Magazine income for January2020 accounted)
    4.We sent the January2020 issue on 10.01.2020 thro.post and passed JV as below:
    i.Postal charges Dr.Rs.36/-
    ii.Cash Cr.Rs.36/-
    5.Can we account postal charges separately in postal charges account since it is reimbursement by client and we have not included in our income.

    6.Please Help

    Thanks and regards


  2. CA PUJA says:

    Reimbursement of expenses would mean that you have acted as an agent of the principal for the purpose of any job or assignment.

    I do not see any reason why it should not taxable.

    Further , in case of the reimbursement the agent would also be paying GST on the expenses incurred so why loose the input credit but not billing it under GST , in case GST is not charged further, that means the agent is increasing his input costs.

  3. Balu Gawade says:

    We are an engineering company and many managerial people from our group company are coming India for project work. We are not paying them any remuneration / fees but we are receiving debit note from group company for reimb of insurance cost for these expats paid by our group co. in their country for that specific period. Please let us know impact of GST on above.

  4. Rohan1983 says:

    One correction to my above referred Article – Correct valuation Rule no. w.r.t. subject matter is 33 and not 7. Rule No.7 which was quoted above was actually number as per Draft Rules published in 2017.

  5. JIGNESH says:

    what is tax liabilities is on professional income or
    salary having rs.17000/- p.m
    i am asst. a/c’tant if put me head under professional then what will be the tax format?

  6. vinod bajaj says:

    what about the amount collected by chartered accountant from clients for payment of various direct and indirect taxes.will this also comes under pure agent services


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