When your client is overseas, it is easy to assume that everything on the invoice is automatically zero-rated under GST. Whether it's professional fees, travel recovery, or licence charges, if the client is outside India, it must be an export.
That assumption is where most mistakes begin.
Under GST, reimbursements do not become tax-free merely because the recipient is located abroad. Export status, place of supply rules and valuation provisions determine whether recovered expenses remain outside the tax net or form part of a taxable supply.
How does GST apply to cross-border transactions in India?
GST in India is a destination-based tax. This means tax is charged where goods or services are consumed, not where they originate. If you are exporting goods and services from India, they will be treated as zero-rated supplies under the Integrated GST (IGST) Act. While no GST is payable on exports, GST paid on inputs purchased domestically still applies.
The following conditions must be met for a supply to be treated as an export:
- The supplier is located in India
- The recipient is located outside India
- The place of supply is outside India
- Payment is received in convertible foreign exchange or, where allowed, in INR.
If you are importing goods into India, they will attract IGST at the time of customs clearance, in addition to customs duty. IGST is also applied to imported services.
For imported services where the supplier is outside India, and the recipient is in India, GST is generally payable by the Indian recipient under the reverse charge mechanism. The recipient must account for IGST and can usually claim Input Tax Credit (ITC) on this tax if eligible.
Note: You may export either under a Letter of Undertaking (LUT) without payment of IGST or by paying IGST and later claiming a refund.
Understanding the place of supply for export status
Even if your client is outside India, the service will qualify as export only if the place of supply is outside India.
Under Section 13 of the IGST Act (for cross-border services):
- Generally, the place of supply is the location of the recipient.
- Certain services, like intermediary services, performance-based services and services relating to immovable property, have special rules.
- If your service qualifies as an “intermediary service”, the place of supply may be treated as India even if the client is overseas. In such cases, the transaction will not qualify as an export, and GST will apply.
Note: Following amendments introduced in Budget 2026, the government has removed Section 13(8)(b). The place of supply for intermediary services is now aligned with the recipient’s location, like other services. This means many intermediary services provided to foreign clients can qualify as exports of services, making them zero-rated under GST.
What counts as reimbursement of expenses under GST?
The reimbursement of expenses under GST refers to the repayment of costs that a supplier or employee has incurred on behalf of another person or an entity. The applicability of GST depends on the nature of the reimbursement and the way it is structured.
Under Section 15 of the Central GST (CGST) Act, the value of supply includes any amount the supplier recovers from the recipient for expenses incurred while providing goods or services. This means that, in most cases, reimbursed expenses form part of the taxable value and are subject to GST.
However, GST law recognises the concept of a “pure agent” under Rule 33 of the CGST Rules, 2017. A pure agent is a person who makes a payment to a third party on behalf of the recipient, without adding any mark-up and without using the goods or services for their own benefit. To qualify as a pure agent and exclude the reimbursement from GST, all of the following conditions must be satisfied:
- The supplier is authorised by the recipient to act as a pure agent.
- The payment is made to a third party on behalf of the recipient.
- The reimbursed amount is shown separately on the invoice.
- The supplier does not hold title to the goods or services and does not derive any benefit from them.
If these conditions are fulfilled, the reimbursed amount is excluded from the value of supply and is not subject to GST. In all other cases, including situations where the expense is incidental to the supplier’s own service (such as travel costs incurred while delivering a service) or where any mark-up is added, the reimbursement forms part of the taxable value, and GST is applicable.
Note: GST is not levied on the export payment itself, but banks/payment providers may charge 18% GST on service fees for currency conversion, processing or remittance services.
Tips to handle GST on reimbursement of expenses from overseas clients
Here is how you can manage GST on reimbursed expenses:
- Always show reimbursements as a separate line item on the invoice. If you are claiming pure agent status under Rule 33, clearly state this on the invoice and attach the relevant third-party bills, as a separate disclosure is mandatory.
- Have client consent in writing. Also, keep supporting third-party invoices, proof of payment and, where applicable, documents establishing that the expense was incurred outside India, such as airline tickets issued in foreign currency and foreign remittance records.
- Do not add any mark-up to pure agent reimbursements if you intend to exclude them from the value of supply, as adding a mark-up generally disqualifies pure agent treatment.
- In cases where the expense arises in India and is not covered under pure agent treatment, include it in the taxable amount, charge GST at the relevant rate and may claim ITC as per standard rules.
- If the reimbursement is incidental to the main service, it is treated as a composite supply and taxed at the rate applicable to the principal supply.
- If the reimbursement is separate and independent from the main service, it is taxed separately at the rate applicable to that specific supply.
- For exports, maintain copies of your LUT, foreign inward remittance certificates or other evidence of receipt in convertible foreign exchange, along with proper place-of-supply documentation.
Conclusion
Not every reimbursement qualifies as tax-free just because the client is overseas. First, confirm whether your service truly qualifies as an export by checking the place of supply. Then review each expense carefully; only genuine “pure agent” costs can be kept outside GST. Keep written authorisation, clear invoices and complete proof of payment. When in doubt, include it in taxable value and stay compliant rather than risk penalties later.
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