Whether TDS to be deducted on reimbursement of expenses

1. Answer to question No.30, provided in Circular No.715, dated 8.8.1995, issued by the CBDT [215 ITR (St) 12] is that, tax is to be deducted at source out of the gross amount of the bill, including the reimbursements. So, it follows that, if a separate bill is raised for reimbursements, TDS shall not be deductible on the same. 

2. The Delhi tribunal in Dr William Schwabe India Pvt Ltd (2005)(95 TTJ 53) has TDS cannot be charged in respect of reimbursement of expenses where the consultant had raised a separate bill for such expenses.

3. Income Tax can be charged only on income as per the provisions of Sec 4(1). Sec 4(2) provides that TDS shall be deductible on income chargeable U/S 4(1). Thus, there has to be a profit element for deduction of TDS. 

4. The Hon SC in GE India Technology Centre (2010)(327ITR456) has held that tax is deductible at source, only in respect of income or any other sum which comprises an element of income.

Conclusion: since there is no profit element to the payee in case of reimbursement of expenses, TDS not required to be deducted on the same. 
 

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