Clarification on taxability of shares held in a subsidiary company by the holding company
The CBIC vide Circular No. 196/08/2023-GST dated July 17, 2023, has issued a clarification on the taxability of shares held in a subsidiary company by the holding company.
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 a ‘supply of service’ under GST and will be taxed accordingly or whether such transaction is not a supply.
To clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in the 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:
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S. No. |
Issue |
Clarification |
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Taxability of share capital held in the subsidiary company by the parent company |
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| 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 the definition of goods under clause (52) of section 2 of the CGST Act and the definition of services under clause (102) of the said section. Further, securities include ‘shares’ as per the definition of securities under clause (h) of section 2 of the 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, the 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 a supply of services, there must be a supply as defined under section 7 of the 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 to own a controlling interest.”, unless there is a supply of services by the holding company to the subsidiary company by section 7 of CGST Act. Therefore, the activity of holding shares of a 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. |
The Circular can be accessed at: https://taxinformation.cbic.gov.in/view-pdf/1003170/ENG/Circulars
