More than 150 companies that have raised funds through initial public offering (IPO) since July 2017 are now staring at additional goods and services tax (GST) liability.
Tax authorities have started issuing notices to these companies, asking them to reverse credit claimed on expenses for listing of the shares, people aware of the matter said.
The authorities argue that listing of shares is equivalent to trading of securities, which is an exempted service as per the GST provisions, hence tax credit claimed by the companies should be reversed.
Tax experts, however, said the treatment of IPO as security trading may not be the correct interpretation as the proceeds are used for “furtherance of business”, which is not exempted under GST provisions.
As per Section 17(2) and 17(3) of the Central GST Act, 2017, the quantum of input tax credit allowed for taxable supply cannot be claimed on exempted supply of goods or services. Such credits, if claimed, need to be reversed.
“…companies need to reverse the credit that they claimed,” a senior tax official said. “We have already sent notices to a few companies and more will be sent soon.”
Another official said around 24 notices seeking reversal of credit have been sent out to companies since November.
Tax authorities had taken a similar view under the erstwhile service tax regime. They believe that the public offer was also a transaction in securities and thus companies needed to reverse the credit claimed in lieu of that.
Tax experts said reversing tax credit would amount to significant tax liability, considering the total fund raising through this route.
As per Prime Database, about 168 companies raised over ₹3.10 lakh crore through IPOs between July 1, 2017 – the day GST regime came into effect – and December 2022.