GST on Pure Reimbursements Between Group Companies: Pure-Agent and Cross-Charge Test
By Ravi Sisodia · Reviewed by CA Divyanshu Sengar · Updated 5 October 2026
2-minute summary
- Pure agent requires the recipient to be liable to the third party and to authorise the supplier to pay on its behalf.
- The third-party service should be for the recipient, the payment must be separately shown, and only the exact amount paid should be recovered for the exclusion.
- Common costs incurred centrally for the group often fail the pure-agent test because the head office itself contracts for the service.
- If parties are related or distinct persons, Rule 28 valuation can apply to the underlying taxable service; full ITC affects valuation but not the need to identify the supply.
Current position
Control and evidence map
| # | Control | What the file should show |
|---|---|---|
| 1 | Identify the third-party contract and legal recipient of the external service. | |
| 2 | Check written authorisation for payment on behalf of the recipient. | |
| 3 | Separate exact pass-through from the supplier’s own service fee in the invoice. | |
| 4 | For non-pure-agent cost sharing, apply related/distinct-person valuation and place-of-supply rules. | |
| 5 | Reconcile external invoice, intercompany allocation key, GST invoice and ITC utilisation. | |
Worked example
GroupCo A pays a statutory filing fee that GroupCo B is legally required to pay, under B’s written authorisation, and recovers the exact amount separately. This can be tested against Rule 33. By contrast, if A contracts an external consultant for a group project and allocates the consulting fee across subsidiaries, the fact that A earns no markup does not by itself make the recharge a pure-agent payment.
Common mistakes
- Equating “no markup” with pure agent.
- Ignoring the legal recipient named in the third-party contract.
- Combining reimbursable and service-fee amounts without separate disclosure.
- Using a management recharge journal instead of a GST document where a taxable supply exists.
Frequently asked questions
Is cost-to-cost recharge automatically outside GST?
No. Rule 33 conditions must be met for pure-agent exclusion.
Does related-party status change the pure-agent test?
No.
What if the recipient has full ITC?
That may affect Rule 28 valuation, but supply character and invoicing still need to be addressed.
What is the strongest evidence?
Third-party contract, recipient liability, written authorisation, separate invoice disclosure and exact payment/recovery trail.
Official sources
- Central Board of Indirect Taxes and Customs - CGST Valuation Rules (current rules)
- Central Board of Indirect Taxes and Customs - Central Goods and Services Tax Act, 2017 (current consolidated law)
Disclaimer
Educational and professional reference only; confirm the current law, rates and the facts of your case before relying on this page.