Taxability under GST of a Shareholder's Right to Require Purchase of Shares (Put Option)

[Dipika Shetye]

A company has two classes of equity shares, one carrying economic rights and the other carrying voting rights. Under a Shareholders' Agreement certain holders of the economic-rights shares are granted a put option. The put option gives such shareholders the right, but not the obligation, to require another shareholder group to purchase the economic-rights shares held by them at specified terms. No separate consideration is payable to COmpany for grant of the put option.

The issue for consideration is whether the grant of such put option (i.e, the Right to Sell) under the SHA constitutes a supply of services under GST.

AI Summary

Put option rights over shares may be treated as securities transactions, though separate-service characterisation requires careful GST examination.
GST treatment of a shareholder's put option depends on whether the right to require purchase of economic-rights shares is an independent supply of services. Where no separate consideration is paid for granting the option, one view treats the arrangement as a non-taxable transaction involving securities, which are outside the definitions of goods and services. However, a separate-service characterisation of the put option may be raised and requires further examination.