No GST Payable On Activity Of Holding Of Shares Of Subsidiary Company By The Holding Company: CBIC

The Central Board of Indirect Taxes and Customs (CBIC) has issued a clarification on the taxability of shares held in a subsidiary company by the holding company.

The Board has received the representations from the trade and field formations seeking clarification on 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.

CBIC has clarified that 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). The securities include ‘shares’ as per the definition of securities under clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.

The securities held by the holding company in the subsidiary company are neither goods nor services. 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 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,” the CBIC clarified.

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 subsidiary company and cannot be taxed under GST.

Circular No. 196/08/2023-GST

Date: 17/07/2023

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