GST on Disbursement and Reimbursement of Expenses: A Complete Guide
Disbursement and reimbursement are common in business. You may pay some expenses on behalf of a client, or your employee may spend for work and later ask for repayment. The big GST question is simple.
Do you need to charge GST again when you recover that money.
The answer depends on whether the amount is treated as a part of your supply value or it is treated as a pure pass through. This guide explains the difference in simple language with clear examples and practical return accounting.
What Are Disbursement and Reimbursement of Expenses under GST?
In day to day business, you often spend money first and recover it later. Under GST, the tax impact depends on who is the actual receiver of the supply and who is legally liable to pay.
Definition and Legal Basis
To understand GST on disbursement and reimbursement, keep these legal concepts in mind.
- Value of supply includes any amount charged in relation to a supply.
- If you recover expenses as part of your service, it can become taxable.
- If you pay as a pure agent of the recipient and recover exactly the same amount, it can be excluded from taxable value if conditions are met.
In simple terms.
- If the expense is your cost, GST usually applies when you bill it to the client.
- If the expense is the client’s cost and you only paid it as a pass through, GST may not apply, if pure agent conditions are satisfied.
Types of Reimbursement and Disbursement under GST
Reimbursement and disbursement are often used like the same word, but under GST you should treat them carefully.
Types of Reimbursement and Disbursement Expenses
Here are common categories seen in businesses.
| Type | What it means | Common examples |
|---|---|---|
| Reimbursement of expenses | You incur expense and later recover from client or employee | Travel, hotel, courier, printing |
| Disbursement of expenses | You pay a third party on behalf of client | Government fees, statutory charges, court fees |
| Mixed recovery | Part is pass through, part is your service cost | Ticket booked by you with service fee |
| Marked up recovery | You recover more than actual expense | Charging admin fee on expense |
A simple rule.
- If you add a margin, it becomes more likely to be taxed.
- If you recover the exact amount and it is a client liability, pure agent logic may apply.
Who is a Pure Agent under GST?
A pure agent is a person who pays certain expenses on behalf of the client and recovers exactly that amount from the client, without adding any value.
Pure agent is important because amounts paid as pure agent can be excluded from the value of supply, which means GST is not charged again on that recovery.
Role of a Pure Agent in Reimbursement and Disbursement
Pure agent applies when all key conditions are met. You should treat it like a checklist.
Pure agent checklist
| Condition | What it means in simple words |
|---|---|
| You act on authorisation | Client has authorised you to pay on their behalf |
| Client is the actual receiver | The third party supply is actually to the client |
| You do not use the goods or services | You do not consume it for your own business |
| You recover exact amount | No markup, no margin |
| You show it separately in invoice | It should be separately indicated |
| You are not liable to pay | Client is the one who should pay, you only paid for convenience |
If even one major condition fails, the amount may become part of taxable value.
Examples of Reimbursement and Disbursement under GST
Examples make this topic much easier because the same expense can become taxable in one case and non taxable in another.
Real Life Examples of Reimbursement and Disbursement Expenses
Example 1: Government fee paid on behalf of client
A consultant pays a government registration fee for a client and recovers the same amount.
- If the receipt is in the client name and the client is the actual beneficiary, it is closer to pure agent.
- If conditions are met, GST is not charged again on that fee recovery.
Example 2: Hotel booked for your team while working at client site
You book hotel stay for your staff and later bill it to the client.
- The hotel service is used by your staff.
- It is your cost of providing service.
- GST is usually applicable when you recover it from the client as part of your service billing.
Example 3: Courier charges for sending client documents
You courier documents and recover courier cost.
- If the courier is part of your service delivery, GST is usually applicable.
- If you are purely paying courier as agent and it is clearly client liability with proof, then pure agent may be explored, but in most practical cases it becomes part of taxable value.
Example 4: Employee reimbursement
An employee spends on fuel for business travel and you reimburse.
- This is internal reimbursement, not supply to employee.
- GST depends on whether the fuel bill has GST and whether ITC is allowed for your business.
- You normally do not charge GST to employee on reimbursement.
Example 5: Markup on expense recovery
You incur printing expense of 5,000 and charge client 6,000.
- The entire 6,000 becomes part of value of supply.
- GST applies on full amount because it is not pure agent and includes markup.
Applicability of GST on Reimbursement and Disbursement of Expenses
This is the decision making part. Use the below table as your quick GST test.
When Does GST Apply to Reimbursement and Disbursement?
| Situation | GST applies | Reason |
|---|---|---|
| Expense is part of your service cost and billed to client | Yes | Included in value of supply |
| You recover with markup or admin fee | Yes | Becomes consideration for supply |
| Expense is paid as pure agent and conditions met | No on recovery | Excluded from value of supply |
| Employee reimbursement for office work | No GST on reimbursement | Not a supply, internal settlement |
| Client asks you to pay statutory fee in their name and you recover exact | Usually no on recovery | Strong pure agent case |
How to Account for Reimbursement and Disbursement in GST Returns
Accounting and return reporting should match your invoice structure.
Accounting for Reimbursement and Disbursement Expenses
Case 1: Taxable reimbursement
If expense becomes part of your supply value.
- Include it in taxable value in your invoice.
- Charge GST on total value.
- Report it in your outward supply returns like any other service invoice.
Case 2: Pure agent pass through
If you qualify as pure agent.
- Show the pure agent amount separately in invoice.
- Do not include it in taxable value.
- Maintain proof such as third party invoice in client name and authorisation.
Suggested invoice structure
| Invoice line item | Tax treatment |
|---|---|
| Professional fee | Taxable |
| Travel and lodging recovered as part of service | Taxable |
| Government fee paid as pure agent | Not added to taxable value if conditions met |
Return reporting tips
| Item | Reporting approach |
|---|---|
| Taxable reimbursements | Include in outward taxable value |
| Pure agent recoveries | Not shown as taxable outward value |
| ITC on expenses | Claim if eligible and conditions met |
Benefits of Proper Disbursement and Reimbursement Under GST
Correct treatment avoids disputes and saves money.
| Benefit | How it helps |
|---|---|
| Lower tax disputes | Clear classification prevents GST notices |
| Better compliance | Proper invoicing and documentation |
| Correct ITC usage | Avoid wrong credit claim and reversal |
| Accurate profitability | Expenses and recoveries recorded correctly |
| Strong audit readiness | Pure agent documents reduce risk |
Common Issues and Misconceptions About GST on Reimbursement and Disbursement
Many businesses make mistakes because they assume all reimbursements are not taxable. That is not true.
Key Points to Remember and Common Mistakes
| Misconception or mistake | What goes wrong | Correct approach |
|---|---|---|
| All reimbursements are non taxable | GST officer treats it as part of value | Check pure agent conditions |
| Not showing separately in invoice | Hard to prove pass through | Separate line item |
| No authorisation proof | Pure agent fails | Keep email, agreement, work order |
| Third party invoice in your name | Shows you are the receiver | Prefer invoice in client name for pure agent |
| Charging markup but calling it reimbursement | Leads to demand | Markup means taxable |
| Claiming ITC and also excluding as pure agent | Can create mismatch | Align treatment with documents |
Conclusion
GST on disbursement and reimbursement is not one fixed rule. It depends on facts and documentation.
If the expense is part of your service delivery and you recover it from the client, GST usually applies because it becomes part of value of supply. If you pay strictly as a pure agent on behalf of the client, recover the exact amount, and meet the required conditions, then that amount can be kept outside taxable value.
The safest approach is simple.
Use clear contract wording, keep authorisation proof, ensure third party invoices match the real recipient, show pure agent amounts separately in invoices, and avoid markups if you want pure agent benefit.
I’m CA Chintan Rathod, a Chartered Accountant based in Nagpur with over 4 years of experience. I specialise in Taxation, helping individuals and businesses plan and file their taxes accurately while staying compliant with the latest regulations. My approach is focused on practical, easy-to-understand guidance so clients can make better financial decisions with confidence.
Frequently Asked Questions
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What is the Difference Between Reimbursement and Disbursement Under GST?
Reimbursement usually means you recover expenses you incurred during providing service. Disbursement generally means you paid a third party on behalf of the client. Under GST, disbursement is more likely to qualify for pure agent benefit if conditions are met.
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When Does GST Apply to Reimbursement of Expenses?
GST usually applies when the expense is part of your service cost and you charge it to the client, or if you add any margin. GST may not apply if you are a pure agent and all conditions are met.
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Is GST Applicable on Employee Reimbursement Expenses?
In most normal cases, GST is not charged on employee reimbursement because it is internal settlement, not a supply. The GST impact is more about whether the company can claim ITC on the underlying invoice, if eligible.
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Can I Claim Input Tax Credit (ITC) on Reimbursement and Disbursement Expenses?
You can claim ITC only if the expense invoice is eligible under ITC rules and is in your business use. If you are acting as pure agent and the invoice is in client name, ITC generally belongs to the client, not you. If the invoice is in your name and used for your business, ITC may be available subject to conditions.
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How Should Disbursement Expenses Be Accounted for in GST Returns?
If disbursement is taxable, include it in taxable value and charge GST. If it is pure agent recovery, show it separately in the invoice, keep documents, and do not include it in taxable turnover. Keep your books and invoices aligned so return values match your accounting.