Clarification on Taxability of ESOP/ESPP/RSU under GST

Context: Companies offer Employee Stock Option Plans (ESOP), Employee Stock Purchase Plans (ESPP), and Restricted Stock Units (RSU) as part of employee compensation. Common Scenario: Indian subsidiaries offer shares of their foreign holding company to employees. The foreign holding company issues the shares directly to the employees, and the Indian subsidiary reimburses the cost to the foreign holding company.

Issue Raised: Questions have arisen about whether this transaction is considered an import of financial services and if GST applies on a reverse charge basis. GST Law: Securities, including shares, are neither goods nor services under GST. Therefore, the transfer of shares/securities is not considered a supply of goods or services and is not liable to GST.

Employment Relationship: Transfer of shares as part of employee compensation is not a supply of goods or services as per Schedule III of the CGST Act. Thus, GST is not applicable on the compensation paid to employees involving the transfer of securities. Reimbursement of Cost: When the Indian subsidiary reimburses the foreign holding company at cost (without any markup), it is not considered a supply of services and is not liable to GST.

Additional Charges: If the foreign holding company charges any additional fee, markup, or commission for the issuance of shares, it is considered a supply of services. GST will be levied on this additional amount, payable by the Indian subsidiary on a reverse charge basis. Conclusion: No GST is applicable on the reimbursement of cost for share transfers without additional charges. However, GST applies to any extra fees charged by the foreign holding company, treated as a service.