Clarification on GST Treatment for MNCs issue ESOP/ESPP/RSU to their Indian Subsidiaries’ employees
Overview
Recently, the Central Board of Indirect Taxes & Customs (CBIC) issued Circular No. 213/07/2024-GST. The circular addresses concerns raised regarding the taxability under GST of transactions for Employee Stock Option Plans (ESOP), Employee Stock Purchase Plans (ESPP), and Restricted Stock Units (RSU) provided by foreign firms to their Indian subsidiaries’ employees. The latest circular issued by the Central Board of Indirect Taxes & Customs (CBIC) aims to resolve disputes and provide exemptions under certain conditions.
Key Points of the Circular
GST Exemption Criteria
ESOP, ESPP, and RSU provided by foreign holding companies to their Indian subsidiary companies’ employees will not attract GST, provided certain conditions are met.
Conditions for GST Exemption
The circular specifies that no supply of service is deemed to occur between the foreign holding company and its domestic subsidiary when ESOP/ESPP/RSU are issued.
GST exemption applies if the domestic subsidiary reimburses the cost of these securities/shares to the foreign holding company on a cost-to-cost basis.
Applicability of GST
GST will only be levied if the foreign holding company charges an additional amount, over and above the cost of securities/shares, to the domestic subsidiary company.
In such cases, GST is applicable on the additional amount charged by the foreign holding company. The domestic subsidiary is liable to pay GST on a reverse charge basis for such import of services.
ESOP/ESPP/RSU is a part of Remuneration
ESOP/ESPP/RSU are considered part of the employee’s remuneration package and are not subject to GST as per Schedule III of the CGST Act, which exempts services provided by employees to employers.
Impact on MNCs and Indian Subsidiaries
This circular is expected to bring clarity and end disputes between the tax department and Indian companies, particularly MNCs and startups.
Experts believe it will provide favorable implications for MNCs and their subsidiaries in India by resolving ambiguities regarding GST on ESOP, ESPP, and RSU.
Conclusion
The issuance of this circular by CBIC marks a significant step towards clarifying GST implications on ESOP, ESPP, and RSU provided by foreign firms to their Indian subsidiaries. It is expected to bring relief to companies facing tax demands and litigation, ensuring compliance under GST laws while facilitating smoother operations for multinational corporations in India.
For more detailed information, refer to Circular No. 213/07/2024-GST issued by CBIC.
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