GST Liability on Payments under Share Purchase Agreement to Old Shareholders

[Sudhir M]

Company A has one shareholder, Company S. A new company has acquired 100% of Company A's shares from Company S under a Share Purchase Agreement. According to the agreement, there are certain incomes (such as incentives under PLI or claims from the government) that Company A will receive and subsequently pay to Company S (the old shareholder).

Will the amounts paid by Company A to Company S, whether from future receipts or profits, be liable for GST?

AI Summary

GST on payments not constituting consideration: contractual pass through of incentives or claims is not taxable as supply.
Payments by an acquired company to a former shareholder that transfer future receipts, government incentives or claims under a Share Purchase Agreement are contractual allocations, not consideration for a supply, and therefore are not subject to GST; acquisition of shares and pass through of such incentives do not attract GST, subject to separate rules applicable to reorganisations like mergers or amalgamations.