GST on relinquishment of rights

[Rakesh Jain]

• A professional entered into a contract with a company.

• As part of consideration, the professional was entitled to equity compensation (shares / ESOP / sweat equity / similar).

• Subsequently, the professional cancelled / relinquished the right to receive equity.

• Instead, the company paid a monetary amount to the professional.

The critical question is whether the amount received for cancellation of equity rights is:

• consideration for supply of services, or

• a non-taxable capital transaction / actionable claim, or

• consideration for tolerating an act / refraining from an act under GST.

AI Summary

Relinquishment of equity rights: payment typically treated as non-taxable capital settlement, not subject to GST.
Where a monetary payment replaces extinguished equity rights, it is generally a non-taxable capital or contractual settlement akin to an actionable claim rather than a "supply"; however, if the payment functions as a substitute for professional fees or remuneration for services, it constitutes consideration for supply of services and is taxable under GST.