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Sales of shares

30 September 2024

Preference shares issued to subsidary unlisted company by holding company by passing resolution ( Not through stock exchange ) for enhancement of capital

As per sale of goods act shares is defined as goods

So is GST applicable for sale of preference shares

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4 Replies

Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (5150 Points)
Replied 30 September 2024

GST (Goods and Services Tax) is not applicable on the sale of preference shares, even though shares are defined as "goods" under the Sale of Goods Act. According to the GST Act, "securities" (which include shares) are exempt from GST. Additionally, the transfer of shares between a holding company and its subsidiary is considered a "transfer of securities" and not a "supply of goods" under GST. However, it's important to note that the issue of preference shares may attract stamp duty, and the company may need to comply with relevant regulatory requirements. To summarize: - GST is not applicable on the sale of preference shares. - The transfer of shares between a holding company and its subsidiary is considered a "transfer of securities" and not a "supply of goods" under GST. - Stamp duty may be applicable, and regulatory requirements need to be complied with.

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Rajkumar Gutti (591 Points)
Replied 01 October 2024

Ok, Thanks

SMIFS LIMITED (37 Points)
Replied 03 October 2024

Securities are exempt from GST as such sale of preference shares do not attract GST.

Khushbu Bansal (student) (48 Points)
Replied 04 October 2024

No, GST is not applicable on the sale of preference shares. Here's a detailed explanation of why GST does not apply in this case:

1. Definition of Goods Under GST:

Under the CGST Act, 2017, the definition of goods (Section 2(52)) includes:

"Every kind of movable property other than money and securities but includes actionable claim..."

The critical part here is that "securities" are excluded from the definition of goods under GST law. Shares, debentures, and other marketable securities fall under the definition of securities, as per the Securities Contracts (Regulation) Act, 1956.

Shares, including preference shares, are classified as securities and therefore excluded from the ambit of goods for GST purposes.

2. Sale of Shares (Including Preference Shares):

As preference shares are categorized under securities, any transaction involving the issue or sale of such shares is not considered a supply of goods or services under GST law.

In your case, the preference shares issued by the holding company to its subsidiary company (even if done through a resolution and not through the stock exchange) would not be liable for GST because:

The transaction is related to securities, and securities are specifically excluded from the scope of goods and services under GST.

3. Relevant Provisions of the Sale of Goods Act:

While shares may be defined as goods under the Sale of Goods Act, 1930, for purposes of commercial transactions, the GST framework takes a different approach. It explicitly excludes securities from the definition of goods to avoid taxation on capital market transactions.

4. No GST on Capital Market Transactions:

The issue of shares (including preference shares) is a capital market transaction. These transactions, including buying and selling shares, debentures, bonds, etc., are governed by securities laws (such as the Securities Contracts (Regulation) Act) and are outside the scope of GST.

5. Taxation on Sale of Shares:

While GST is not applicable, other taxes such as Securities Transaction Tax (STT), Income Tax (capital gains tax), or other applicable taxes may apply based on the specific circumstances of the transaction.

Conclusion:

GST is not applicable on the issue or sale of preference shares because these transactions involve securities, which are excluded from the definition of goods and services under GST law.