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Taxability of reimbursement of

business expenses under Income-

tax Act

Introduction

1. The general concept is that reimbursement is the act of compensating
someone for expenses incurred by it by giving it an amount of money
equal to what was spent. The business entities, including corporates,
compensate, for expenses incurred by their employees or employees
of other entities, or their associate enterprises for work done for them
in accordance with terms of the business contract. The employees or
the associate enterprises may render services either in the resident
country (of the concerned corporate) or outside the resident country.
The expenditure incurred for the corporate entity may be of the
nature of salary/remuneration, or business expenditure. With so D.C. AGrAWAL
Advocate,
many aspects involved in the expenditure and its reimbursement, (Former CIT & Accountant
various issues arise relating to the taxability of reimbursed amount Member of ITAT)
and withholding tax thereon. These issues have been discussed in
brief in this write up.

Whether reimbursement of salary/remuneration is taxable in
the hands of NRE?

2. Foreign entities may depute their employees to the Indian
enterprise for rendering various services. For determining taxability
of reimbursement, it has to be found whether reimbursement is of
actual amount incurred on the salary of the employees by the NREP.
If yes, then it will not be taxable. If there is a mark-up then entire or
part of reimbursement will be taxable in India. If employer-employee
relationship exists between Indian concern and the foreign employees,
then such reimbursement will be taxable in India.
For example- To facilitate outsourcing agreement with the assessee, an
Indian company, secondment agreement was entered into by Abbey
UK with assessee, according to which Abbey UK bore all expenses
in relation to secondees and assessee reimbursed all such expenses
to Abbey UK. It was held that since payment made by assessee to
Abbey UK was pure reimbursement of expenses without any profit

118 January 20 To January 26, 2018 u Taxmann’s Corporate Professionals Today u Vol. 41 u 12