TaxTMI 
TaxTMI 
GST on relinquishment of rights
X X X X Extracts X X X X
X X X X Extracts X X X X
....ST on relinquishment of rights<br> Query (Issue) Started By: - Rakesh Jain Dated:- 18-12-2025 Last Reply Date:- 20-12-2025 Goods and Services Tax - GST<br>Got 4 Replies<br>GST<br>* 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 professiona....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l 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 unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r GST. Reply By Sadanand Bulbule: The Reply: This does not constitute supply of service under Section 7. Hence not liable for GST. Reply By Ryan Vaz: The Reply: Applicable Law / Circulars (India) * Section 7, CGST Act, 2017 - Scope of "supply" * Schedule II, para 5(e), CGST Act - "agreeing to the obligation to refrain from an act, or to tolerate an act, or to do an act" treated as supply o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f services * Schedule III, CGST Act - Activities neither supply of goods nor services * Actionable claims (other than lottery, betting, gambling) * Section 2(102), CGST Act - Definition of "services" * CBIC Circular No. 178/10/2022-GST dated 03-08-2022 - Liquidated damages, cancellation charges, penalties * CBIC Circular No. 214/1/2024-GST dated 26-06-2024 - Clarification on taxability o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f compensation, damages, penalties, and cancellation of contracts * GST Council jurisprudence / Advance Rulings on contract cancellation and ESOP-linked arrangements (principle-based) Short Practical Answer In most genuine ESOP / equity-linked professional arrangements, the amount received for cancellation of equity rights should not be treated as consideration for "tolerating or refraining fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om an act" under GST. The tax treatment generally falls into two possible buckets, depending on the true character of the contract: * Non-taxable (most defensible position): The payment is a capital / contractual settlement for extinguishment of an equity-linked right (akin to an actionable claim or capital receipt) ? Not a "supply" under GST. * Taxable as consideration for services (except....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion cases): If the equity cancellation payment is clearly a substitute for professional fees or services rendered/to be rendered, then it can be treated as consideration for supply of services ? GST applicable. It should ordinarily not be taxed as "tolerating an act / refraining from an act" merely because a right was relinquished. Reply By KASTURI SETHI: The Reply: Dear Querist, There are m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any case laws available in your favour on this very issue. Easily traceable on various websites. Reply By Shilpi Jain: The Reply: More facts are needed and Terms of the contract when the contract was cancelled would be relevant to arrive at the taxability.<br> Discussion Forum - Knowledge Sharing ....