GST on transfer of partnership share in LLP

[Narayan Pujar]

There is a corporate restructuring within a bunch of group companies. I would like to know the taxability under GST of transfer of partnership share by a partner in LLP to a existing partner or in case of a third party against shares in a private limited company.

As per my understanding, shares against share in partnership is a barter transaction. Transfer of shares will be outside GST as it securities. But the other leg, i.e., transfer of partnership share the same will qualify as 'supply of service'.

[Shilpi Jain]

How does transfer of partnership share occur? 

Retirement and admission of partner right? So are you saying that this person is giving away his right of profit which is a service?

[Shilpi Jain]

Is there any agreement to this effect?

[Narayan Pujar]

There is no agreement yet. But this arrangement is still in talks and we are exploring the avenues. Yes, existing partner is giving up interest in partnership and retiring. In return he is receiving  shares in another company and Company will become the new partner.

[Shilpi Jain]

The nature of agreement between the retiring partner and the incoming partner will decide the taxability 

In the other scenario, it would be in the nature of repayment of capital of the retiring partner and should not be liable to GST.

AI Summary

GST on transfer of partnership interest depends on whether the transaction is a capital repayment or a taxable supply. GST treatment of a partner's transfer of partnership interest depends on the transaction's character: issuance of company shares is likely outside GST as securities, while the transfer of partnership interest may be a supply of service. The nature of the agreement governs taxability-if the payment to the retiring partner is a repayment of capital it should not attract GST; if it conveys remunerative rights in exchange for shares it may be taxable.