Are Bonus Shares Gifted to Employees Taxable Under GST?

To determine whether the issue or transfer of bonus shares and other securities are subject to GST levy, one needs to look at the definition of goods and services.

Sections 2(52) and 2(102) define “goods” and “services,” respectively. In both the definitions money and securities are excluded. So these are neither goods nor services.

Also, where these shares are given in terms of the employment contract, they would not be “gifts” but will be treated as emoluments arising out of the employment (including perquisites) and cannot be treated as a supply.

Schedule I of the CGST Act (referred to under Section 7(2)(a) considers certain transactions made without consideration as deemed supply. The proviso to para. 2 of the Schedule treats all gifts greater than Rs. 50,000 per financial year (or part thereof) as a supply of goods or services or both.

Why are Bonus Shares and Securities Out of Scope

GST is intended to tax the supply of goods or services or both. Transactions in securities are fundamentally considered transactions in financial instruments representing title or investment and not supplies for consumption.

Securities such as shares, debentures, bonds, derivatives, mutual fund units, etc., merely represent ownership rights, debt obligations, investment instruments, or actionable market entitlements. They are not “consumed” like goods or services.

Further securities are subject to other fiscal levies like stamp duty, Securities Transaction Tax (STT), capital gains under the Income Tax Act 1961, and other SEBI regulatory levies. Subjecting the same transaction to GST would amount to double taxation.

Conclusion

Securities are outside the scope of GST as defined under Sections 2(52) and 2(102). Hence, bonus shares issued to employees are not taxable. If they are issued pursuant to an employment contract, they would be emoluments (perquisites), which would be covered under the Income Tax Act.