Important Keyword: Circular No. 196/08/2023 - GST, GST on Holding Company, GST on Parent Company, GST on Subsidiary Company, Share Capital GST, Shareholding GST, Securities under GST, Section 7 CGST Act, SAC 997171, GST on Shares, Holding Company Services GST,
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F. No. CBIC-20001/5/2023-GST
Government of India
Ministry of Finance
(Department of Revenue)
Central Board of Indirect Taxes and Customs
GST Policy Wing
****
New Delhi, Dated the 17th July, 2023
Circular No. 196/08/2023 - GST: Clarification on Taxability of Share Capital Held in Subsidiary Company by the Parent Company
To,
The Principal Chief Commissioners/Chief Commissioners/Principal Commissioners/ Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam/Sir,
Representations have been received from the trade and field formations seeking clarification on certain issues whether the holding of shares in a subsidiary company by the holding company will be treated as ‘supply of service’ under GST and will be taxed accordingly or whether such transaction is not a supply.
2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby clarifies the issues as under:
| S. No. | Issue | Clarification |
| Taxability of share capital held in subsidiary company by the parent company | ||
| 1. | Whether the activity of holding shares by a holding company of the subsidiary company will be treated as a supply of service or not and whether the same will attract GST or not. | Securities are considered neither goods nor services in terms of definition of goods under clause (52) of section 2 of CGST Act and the definition of services under clause (102) of the said section. Further, securities include ‘shares’ as per definition of securities under clause (h) of section 2 of Securities Contracts (Regulation) Act, 1956. This implies that the securities held by the holding company in the subsidiary company are neither goods nor services. Further, purchase or sale of shares or securities, in itself is neither a supply of goods nor a supply of services. For a transaction/activity to be treated as supply of services, there must be a supply as defined under section 7 of CGST Act. It cannot be said that a service is being provided by the holding company to the subsidiary company, solely on the basis that there is a SAC entry ‘997171’ in the scheme of classification of services mentioning; “the services provided by holding companies, i.e. holding securities of (or other equity interests in) companies and enterprises for the purpose of owning a controlling interest.”, unless there is a supply of services by the holding company to the subsidiary company in accordance with section 7 of CGST Act. Therefore, the activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST. |
3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.
4. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board. Hindi version would follow.
(Sanjay Mangal)
Principal Commissioner (GST)
📚 Frequently Asked Questions (FAQs): Circular No. 196/08/2023 - GST
Q1. What is Circular No. 196/08/2023-GST?
Answer:
Circular No. 196/08/2023-GST clarifies whether the holding of shares by a parent (holding) company in its subsidiary company amounts to a supply of services under GST. The CBIC has clarified that merely holding shares in a subsidiary does not constitute a supply and, therefore, does not attract GST. The clarification was issued to remove doubts and ensure uniform implementation of the GST law across field formations.
Q2. Does a parent company's shareholding in its subsidiary attract GST?
Answer:
No. Simply holding shares in a subsidiary company does not attract GST.
In simple terms, a parent company investing in the share capital of its subsidiary is merely holding securities. Since securities are neither goods nor services under the CGST Act, this activity is not treated as a taxable supply under GST.
Q3. Why is holding shares not considered a supply under GST?
Answer:
The circular explains that shares are classified as securities, and securities are excluded from the definitions of both goods and services under the CGST Act.
Many businesses actually faced this issue because they believed that holding shares itself amounted to providing management or financial services. CBIC has clarified that ownership of shares alone does not create a taxable supply under Section 7 of the CGST Act.
Q4. Does the existence of SAC 997171 make shareholding taxable?
Answer:
No. The presence of Service Accounting Code (SAC) 997171, which refers to services provided by holding companies, does not automatically make shareholding taxable.
The circular clearly states that a SAC entry by itself cannot create a tax liability. GST applies only if there is an actual supply of services as defined under Section 7 of the CGST Act.
Q5. What is SAC 997171 referred to in the circular?
Answer:
SAC 997171 describes services provided by holding companies, including holding securities or equity interests for the purpose of owning a controlling interest.
If you look at it practically, this is only a classification code. It does not mean that every holding company automatically provides taxable services. A taxable supply arises only when there is an actual supply under the GST law.
Q6. Can a holding company provide taxable services to its subsidiary?
Answer:
Yes. A holding company may provide taxable services such as management support, accounting, legal assistance, IT services, consultancy, or administrative support to its subsidiary.
However, those services are separate from the activity of merely holding shares. The circular clarifies only that shareholding itself does not amount to a supply of services.
Q7. Does purchasing or selling shares amount to a supply under GST?
Answer:
No. The purchase or sale of shares, by itself, is neither a supply of goods nor a supply of services under GST.
Let’s understand this with an example. If a parent company acquires additional equity shares in its subsidiary to increase its ownership, the transaction itself is outside the scope of GST because it involves securities.
Q8. Which legal provisions support this clarification?
Answer:
The circular relies on several legal provisions. It refers to Section 2(52) and Section 2(102) of the CGST Act, which exclude securities from the definitions of goods and services. It also refers to Section 2(h) of the Securities Contracts (Regulation) Act, 1956, which defines securities to include shares, and Section 7 of the CGST Act, which governs what constitutes a supply.
Q9. Why was this clarification necessary?
Answer:
The clarification was issued because some field formations questioned whether a parent company holding shares in its subsidiary should be treated as providing services under SAC 997171.
The circular removes this uncertainty by confirming that shareholding alone is not a taxable activity, thereby reducing unnecessary litigation for corporate groups and holding companies.
Related Resource:
GST Compliance: https://finodha.in/gst-compliance/
Q10. Does this circular exempt holding companies from GST on all transactions with subsidiaries?
Answer:
No. This is a common misunderstanding.
The circular applies only to the activity of holding shares. If the parent company separately provides management, consultancy, technical, administrative, or any other taxable services to its subsidiary for consideration, those transactions will continue to be governed by the normal GST provisions.
Download PDF: Circular No. 196/08/2023 - GST
More Information: https://taxinformation.cbic.gov.in/
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