The Central Board of Indirect Taxes and Customs (CBIC) has clarified that no GST can be levied on the offer of ESPPs, ESOPs, or RSUs to employees by Indian subsidiaries of foreign holding companies. 

However, there is one catch – the transfer of securities from foreign holding companies to employees should not involve additional payment by the Indian subsidiary. 

Companies offer Employee Stock Purchase Plans (ESPPs), Employee Stock Option Plans (ESOPs) of Restricted Stock Units (RSUs) to employees as a part of their compensation packages. 

In a circular dated 26th June 2026, CBIC said, “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.”

This clarification will benefit companies like Google, Microsoft, Oracle, Walmart, and numerous other tech firms and multinational corporations whose Indian employees receive ESOP benefits.

Many MNCs and startups were previously facing tax demands and were involved in legal disputes regarding the taxability of these ESOPs.

The following are detailed clarifications mentioned in the circular:

Nature of ESOPs, ESPPs, and RSUs

These are incentive schemes offered by companies to their employees to enhance performance and retain talent.

They involve the transfer of securities or shares from the employer to the employee as part of the compensation package.

Non-taxability of Securities

Under GST law, securities are neither classified as goods nor services. Therefore, the purchase or sale of securities, including shares, does not attract GST.

Consequently, the transfer of ESOPs, ESPPs, or RSUs from a foreign holding company to the employees of an Indian subsidiary is not considered a supply of goods or services and is not liable to GST.

Reimbursement of Costs

When the Indian subsidiary reimburses the foreign holding company for the cost of shares, it merely covers the market value of the securities.

This reimbursement, done on a cost-to-cost basis without any additional fee, markup, or commission, does not constitute an import of services and is not subject to GST.

Additional Fees or Charges

If the foreign holding company charges any additional fees, markup, or commission over and above the cost of the shares, this will be treated as consideration for the supply of services.

Also Read: ICICI Bank Joins $100 Billion Market Cap Club, Only 6th Indian Company to Reach this Milestone

In such cases, GST will be applicable on the additional amount, and the Indian subsidiary will be liable to pay GST under the reverse charge mechanism.

This circular ensures that GST provisions related to ESOPs, ESPPs, and RSUs are implemented consistently and provides much-needed clarity to businesses.

CBIC also advised companies to issue suitable trade notices to inform stakeholders of these clarifications. Any difficulties implementing the circular can be reported to the Board for further assistance.

Want to learn the art and science of managing your money? The 1% Club can help. Details here

FAQs

1. What does CBIC’s GST clarification on ESOPs mean?

CBIC has clarified that no GST applies to Employee Stock Ownership Plans (ESOPs) issued by Indian subsidiaries of foreign companies to their employees, as they are not considered a “supply” under GST laws.

2. Which companies qualify for this GST exemption?

Only Indian arms/subsidiaries of foreign companies issuing ESOPs to employees in India are eligible. Domestic Indian companies remain under existing GST rules.

3. Why were ESOPs earlier considered taxable under GST?

Earlier, tax authorities argued that ESOPs involved a “service” from the foreign parent to the Indian subsidiary, potentially attracting GST. CBIC’s circular now overrules this.

4. Does this exemption apply to past ESOP transactions?

Yes, the clarification is retrospective. Companies can claim refunds or rework past filings if GST was paid earlier on ESOPs.

5. Are there compliance requirements for this exemption?

Yes, companies must ensure proper documentation, including employee contracts and ESOP agreements, to prove eligibility.

6. Do employees have to pay GST when selling ESOPs?

No, GST applies only to the issuance of ESOPs. Capital gains tax (under income tax laws) applies when employees sell shares.

7. How is the valuation of ESOPs determined for GST purposes?

Since ESOPs are GST-exempt, valuation (e.g., FMV) is irrelevant for GST. However, income tax rules for valuation still apply.

8. Are Indian subsidiaries required to reverse ITC for ESOPs?

No, since ESOPs are not a supply, Input Tax Credit (ITC) reversal is not required under GST laws.

9. Does this exemption apply to ESOPs from domestic Indian companies?

No, CBIC’s clarification is only for Indian arms of foreign companies. Domestic firms must follow existing GST rules.

10. What if a foreign company directly issues ESOPs to Indian employees?

If the ESOPs are issued directly by a foreign parent (not through an Indian subsidiary), GST may apply. Consult a tax expert for case-specific advice.