GST implications on ESOP transactions

by | Sep 12, 2023 | Outlook | 0 comments

Companies often grant shares or share options to their employees. Employee Stock Option Plan (‘ESOP’) is an arrangement between the Company and its employee which entitles employee to receive shares of respective Company or Group Companies subject to meeting of vesting conditions.

Recently, Revenue authorities have started disputing transactions involving issuance of ESOP’s by Foreign Parent Company to employees of Indian Company.

Vide this Outlook, we intend to update you about GST implications which may arise on issuance of ESOPs by Foreign Parent Company to employees of Indian Company:

  • Foreign Parent Company issues ESOPs to Indian Company’s Employees subject to meeting of vesting conditions in Indian Company.
  • Indian Company reimburses following amount to Foreign Parent Company for issuance of ESOPs:

–   Value of shares issued by Foreign Parent Company

–   Expenses incurred by Foreign Parent Company in relation to ESOPs

  • Following GST implications will arise on aforesaid reimbursements:

–   No GST implications on reimbursement by Indian Company for value of shares since shares are securities which are neither goods nor services under GST law.

–   No GST implications on provision of shares by Indian Company to employees since shares are given as consideration for employment services which are also subject to                        Income Tax TDS under head “Salaries”.

–  Indian Company liable to pay GST under RCM on reimbursements for expenses in relation to ESOPs if any.

NITYA Comments: Though transaction between Foreign Company & Indian Company and Indian Company & employees do not entail any GST implications since such transaction is of issuance of securities. The Revenue is incorrectly seeking GST thereon. It is pertinent to note that Indian Company will be liable to pay GST under RCM on reimbursement of expenses if any.


Submit a Comment

Your email address will not be published. Required fields are marked *