Reimbursements & Disbursements

Meaning: The term “reimbursement” refers to the recovery of expenses that is incurred as a principal. The term “disbursement”, on the other hand, refers to the recovery of payments made on behalf of another person.

Tax Treatment: A reimbursement is considered to be a part of consideration for the supply and follows the same VAT treatment as the main supply. Reimbursement of expenses falls within the scope of VAT and shall be vatable @ 5%. Disbursement of expenses is out of scope of VAT.

Indicators of Reimbursement:

1. Registrant should have contracted for the supply of goods & services in his own name and capacity;
2. Registrant should have received the goods & services from the supplier;
3. The supplier should have issued the invoice in Registrant’s name and registrant is under legal obligation to make the payment for it;
4. In case of goods, the registrant should own the goods prior to making the onward supply to the other party.

Indicators of Disbursement:

1. The other party should be the recipient of the goods or services;
2. The other party should be responsible for making the payment to the supplier;
3. The other party should have received tax invoice in its own name from the supplier;
4. The other party should have authorized the Registrant to make the payment on his behalf;
5. The payment should separately be shown on the tax invoice and Registrant should recover the exact amount paid to the supplier, without a mark-up.