Under section 15(2)(c) of the CGST Act, any amount a supplier charges for anything done in relation to the supply — including costs it incurs and recovers — forms part of the value of supply. A reimbursement is excluded from value only where the supplier acted as a pure agent under Rule 33 of the CGST Rules: it was authorised by the recipient to incur the expense, the payment is separately indicated on the invoice, the amount recovered is the actual amount paid, and the goods or services procured are in addition to the supplier's own supply; and the supplier holds no title, does not use them for its own interest and receives only the actual amount. Between an Indian subsidiary and its foreign parent, a reimbursement that meets Rule 33 is outside GST; one that does not is part of the export service value — still zero-rated under LUT, but the characterisation must match the transfer pricing pass-through position and the purpose code used for the remittance.
Key facts
| Provision | Old reference (to 31 Mar 2026) | New reference (from 1 Apr 2026) | Rate / threshold | Timing | Form |
|---|---|---|---|---|---|
| Value of supply includes incidental expenses and reimbursements | s. 15(2)(c) CGST Act | Unchanged | — | — | — |
| Pure agent exclusion | Rule 33 CGST Rules | Unchanged | Four conditions + three definitional tests | — | Separate line on invoice |
| Related-party valuation | Rule 28; Circular 199/11/2023 and 210/4/2024 | Unchanged | Invoice value = OMV where full ITC | — | — |
| Secondment reimbursements | Northern Operating Systems (Supreme Court, 2022); Circular 210/4/2024 | Unchanged | Manpower supply by foreign entity may attract RCM | — | — |
| Transfer pricing — pass-through costs | Rule 10TA (operating expense definition) | Rules 86–102 | Excluded from markup base where no function/risk | — | Form 48 |
| FEMA — purpose codes | RBI purpose code master | Unchanged | Service income vs reimbursement coded separately | Each remittance | A1/A2 forms via bank |
Two directions, two questions
Reimbursements flow both ways in a group. Inbound (the parent reimburses the Indian subsidiary for costs it incurred): is the reimbursement part of the Indian company's export service, or outside GST as a pure-agent recovery? Outbound (the Indian subsidiary reimburses the parent for costs the parent incurred for it): is the payment consideration for an imported service on which reverse charge applies, or a pure-agent recovery with no supply?
The pure agent test
Rule 33 excludes from the value of supply expenditure incurred by a supplier as a pure agent of the recipient when all of the following hold:
- The supplier acts as a pure agent of the recipient when making the payment to the third party, on authorisation by the recipient;
- The payment made by the pure agent on behalf of the recipient is separately indicated in the invoice;
- The supplies procured from the third party are in addition to the services the supplier provides on its own account.
And "pure agent" means a person who (a) enters into a contractual arrangement with the recipient to act as its pure agent to incur expenditure in the course of the supply; (b) neither intends to hold nor holds any title to the goods or services procured; (c) does not use them for its own interest; and (d) receives only the actual amount incurred, in addition to the amount received for its own supply.
The textbook example is a customs broker paying duty on the importer's behalf. In a captive, the equivalent is a third-party licence or cloud contract that the parent asked the Indian company to pay locally, which the Indian company does not use and recharges at cost on a separate invoice line. The Indian company's own office rent, its team's laptops or its recruitment fees are not pure-agent costs however they are labelled — they are costs of its own supply.
Inbound reimbursements that fail Rule 33
They become part of the value of the Indian company's service. For an exporter under LUT the tax effect is nil either way — zero-rated is zero-rated — but three things change: the export turnover for the Rule 89(4) refund formula is larger; the invoice should describe the amount as part of the service fee; and the transfer pricing file should either include the cost in the markup base or document why it is a pass-through without markup. Inconsistency — GST says "service", transfer pricing says "pass-through", the bank remittance says "reimbursement" — is what draws questions.
Outbound reimbursements: the harder case
When the Indian subsidiary reimburses its parent, the question is whether the parent made a supply. Reimbursing the parent for a third-party cost it paid purely as the Indian company's agent (the parent booked a flight for the Indian company's employee on the group travel account and recharged the exact fare) can be a pure-agent recovery. Reimbursing the parent for its own employees' time, its systems, or its overheads is consideration for a service the parent supplied — an import of services under reverse charge, whatever the invoice calls it. The Supreme Court's decision in Northern Operating Systems (2022) treated salary reimbursements for employees seconded by a foreign group company to its Indian affiliate as consideration for manpower supply by the foreign company, attracting tax under reverse charge; CBIC's later circulars tempered the valuation consequences where full ITC is available, but the characterisation point stands. Secondment arrangements should be structured and documented deliberately.
Keeping the three regimes aligned
| Treatment | GST | Transfer pricing | FEMA / bank |
|---|---|---|---|
| Genuine pass-through (Rule 33 met) | Outside value of supply; separate invoice line, no tax | Excluded from markup base; reported in Form 48 as reimbursement | Purpose code for reimbursement; realisation period applies |
| Cost of own supply recovered at cost | Part of service value; zero-rated under LUT (inbound) | In the cost base; marked up unless documented reason | Service income purpose code |
| Outbound reimbursement of parent's own resources | Import of services; RCM; ITC if eligible | Intra-group service; benchmark; withholding under s. 393 tested | Service payment purpose code; Forms 145/146 |
Worked example
An Indian subsidiary incurs three items for its US parent in a quarter: (1) a USD 30,000 annual licence for a testing tool the parent specified and uses in its own CI pipeline, contracted in India for billing convenience; (2) ₹18 lakh of the Indian team's travel to the parent's offices; (3) ₹6 lakh of recruitment agency fees for Indian hires.
- (1) Authorised by the parent, not used by the Indian team, recovered at actual cost on a separate line — pure agent. Outside GST value; outside the transfer pricing cost base; coded as reimbursement at the bank.
- (2) Travel is a cost of the Indian company's own service. Part of the service value (zero-rated), part of the cost base, marked up.
- (3) Same as (2) — the hires are the Indian company's employees.
Conversely, the parent recharges the Indian company USD 20,000 for its global HR team's time on Indian onboarding. That is an imported service: the Indian company pays IGST under reverse charge, claims ITC, tests withholding under section 393 and files Form 145 (and Form 146 if the year's taxable remittances to the parent exceed ₹5 lakh).
Common mistakes we see
- Labelling ordinary operating costs as 'reimbursements' to keep them out of the markup, which fails Rule 33 and creates inconsistency across GST, transfer pricing and the bank's purpose codes.
- Adding a markup to a pure-agent item. The moment a margin is added, the pure-agent conditions fail.
- Treating outbound 'reimbursements' of the parent's staff time as outside GST. They are imported services under reverse charge.
- Not showing pass-throughs as separate invoice lines — a stated condition of Rule 33.
- Running secondments of parent employees on a 'salary reimbursement' basis without analysing manpower-supply exposure.
Frequently asked questions
Are reimbursements subject to GST in India?
By default yes — section 15(2)(c) includes incidental expenses and recoveries in the value of supply. They are excluded only where the supplier acted as a pure agent under Rule 33 and all its conditions are met.
What are the pure agent conditions?
Authorisation by the recipient; separate indication on the invoice; the procured supply is in addition to the supplier's own; and the supplier holds no title, does not use the item for its own interest and recovers only the actual amount under a contractual arrangement to act as pure agent.
Does it matter for an exporter under LUT whether a reimbursement is a pure-agent item or part of the service?
The tax is nil either way, but the classification changes the export turnover for the refund formula, the invoice description, the transfer pricing cost base and the FEMA purpose code. Keep all three consistent.
Is reimbursing my foreign parent for seconded employees' salaries taxable?
Following Northern Operating Systems, such reimbursements can be treated as consideration for manpower supply by the foreign company, attracting IGST under reverse charge. Later CBIC circulars ease valuation where full ITC is available. Structure secondments carefully.
Can a reimbursement be marked up and still be a reimbursement?
No. A markup means the supplier received more than the actual amount, failing the pure-agent definition. A marked-up recovery is part of the value of supply.
Should pass-through costs appear in Form 48?
Yes. Reimbursements between associated enterprises are international transactions and must be reported, with the basis for treating them as pass-through without markup.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- CGST Act, IGST Act, CGST Rules and GST circulars — CBIC
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
- RBI Master Directions — Reporting under FEMA; External Commercial Borrowings; Overseas Investment; Export of Goods and Services; LRS
Last reviewed on 1 November 2026 by Monal Agarwal, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
