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Applicability of gst on sale of ongoing proprietary firm

Rachna (Accounts Assistant ) (37 Points)

23 March 2023

abc pvt ltd buying abc propertary firm and owner of abc firm is alloted shares in pvt ltd ..which means mode of consideration is shares..whether gst is applicable on this acquisition of business ?? abc propertary firm is capable of running its own business..but for better growth..both have decided to operate as single company..after this transaction same business shall be continued by abc pvt ltd...experts pls guide with any reference of possible with respect to tds gst and capital gain

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Apurba Pandit (Owner) (0 Points)
Replied 23 March 2023

Based on the information provided, it appears that ABC Pvt Ltd is acquiring ABC Proprietary Firm through a share allotment, meaning that the mode of consideration is in the form of shares. The following is a summary of the possible tax implications of this transaction:

GST: The acquisition of a business as a going concern is generally not considered a supply of goods or services under the Goods and Services Tax (GST) regime. Therefore, GST is not applicable on the transaction.
TDS: There is no requirement to deduct tax at source (TDS) on the allotment of shares. However, if there is any consideration paid in cash or kind in addition to the shares, TDS may be applicable on such consideration under the Income Tax Act.
Capital Gains: The transfer of shares by the owner of ABC Proprietary Firm to ABC Pvt Ltd in exchange for shares will be considered a transfer of a capital asset. The tax implications will depend on whether the owner of ABC Proprietary Firm is a resident or non-resident for tax purposes, the holding period of the shares, and the cost of acquisition of the shares. If the shares are held for more than 12 months, the gains will be considered long-term capital gains and taxed at a lower rate than short-term capital gains. However, if the transfer is made without any consideration, there will be no capital gains tax implications.