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TMI BlogClarification on the taxability of ESOP/ESPP/RSU provided by a company to its employees through its overseas holding company.X X X X Extracts X X X X X X X X Extracts X X X X ..... k Unit (RSU) provided by a company to its employees. 2.1 It has been represented that some of the Indian companies provide the option to their employees for allotment of securities/shares of their foreign holding company as part of the compensation package as per terms of contract of employment. In such cases, on exercising the option by the employees of Indian subsidiary company, the securities/shares of foreign holding company are allotted directly by the holding company to the concerned employees of Indian subsidiary company, and the cost of such securities/shares is generally reimbursed by the subsidiary company to the holding company. 2.2 Doubts are being raised regarding taxability of such a transaction under GST, i.e. whether such tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same i.e. the allocation of securities or shares from the employer to employee as part of compensation package with the aim of motivating enhanced performance. 4.1 A transaction involving transfer of ESOP/ESPP/RSU to the employees of domestic subsidiary by the foreign holding company appears to involve the following steps: The domestic subsidiary company gives option/ facility of ESOP/ESPP/RSU to its employees as part of compensation package as per terms of employment. The employees exercise their stock options, either by purchasing shares at the grant price or by holding the options until they vest. The foreign holding company of the domestic subsidiary company issues ESOP/ESPP/RSU, which are securities/shares listed on the foreign stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to retain the employees, by aligning the interest of employees with that of company. The ESOP/ESPP/RSU is a part of remuneration of the employee by the employer as per terms of employment. As per Entry 1 of Schedule III of the WBGST Act, the services by an employee to the employer in the course of or in relation to his employment are treated neither as supply of goods nor as supply of services. Therefore, GST is not leviable on the compensation paid to the employee by the employer as per the terms of employment contract which involve transfer of securities/shares of the foreign holding company to the employees of domestic subsidiary company. 4.4 The foreign holding company directly transfers the shares/securities to the employees of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, it is clarified that no supply of service appears to be taking place between the foreign holding company and the domestic subsidiary company where the foreign holding company issues ESOP/ESPP/RSU to the employees of domestic subsidiary company, and the domestic subsidiary company reimburses the cost of such securities/shares to the foreign holding company on cost-to-cost basis. However, in cases where an additional amount over and above the cost of securities/shares is charged by the foreign holding company from the domestic subsidiary company, by whatever name called, GST would be leviable on such additional amount charged as consideration for the supply of services of facilitating/ arranging the transaction in securities/ shares b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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