GST Advance Ruling on Preference Shares as Payment for Services
The Authority for Advance Ruling declined to decide if receiving preference shares counts as payment for GST export purposes.
- Ruling
- GUJ/GAAR/R/2025/57 dated 24.11.2025
- Dated
- 24 Nov 2025
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked if receiving preference shares qualifies as payment for services.
- They wanted to know if this payment method exempts them from GST.
- The Authority refused to answer, citing a lack of legal jurisdiction.
- The ruling does not decide if preference shares are valid export proceeds.
In short
The company asked the Authority for Advance Ruling (AAR) if accepting non-voting, irredeemable preference shares from an overseas client counts as receiving payment for services under GST law. They hoped this would prove their service qualifies as an export, which is generally tax-free. However, the Authority decided it could not answer this question because it involves interpreting foreign exchange rules, which falls outside their specific legal powers.
What has changed
How it worked before
Businesses were uncertain whether accepting non-cash assets like shares from foreign clients would be accepted by tax authorities as valid payment for export services.
What has changed
The Authority dismissed the request without providing a decision. This means there is no new guidance on whether preference shares can be treated as 'convertible foreign exchange' for GST purposes, leaving the tax status of such transactions unresolved.
Who this affects
Software developers, consultants, and service providers who receive payment in shares rather than cash from foreign clients.
An example
A software firm plans to license its platform to a foreign client in exchange for company shares. They wonder if this counts as an export of services to avoid GST. Based on this ruling, the Authority will not provide an answer to this question. The firm must now decide whether to proceed without official confirmation or seek a different payment method.
What you should do
Do not assume that receiving shares as payment will automatically qualify your service as a tax-free export. An advance ruling only applies to the specific business that asked the question; it is not a general law. If you are planning a similar payment structure, consult a tax professional to assess your specific GST risk.
If you do nothing
If you assume this ruling allows you to treat share-based payments as tax-free exports, you risk a tax audit. A tax officer may disagree with your interpretation and demand payment of GST plus interest and penalties. Because this ruling is not a binding precedent, you have no legal protection if you follow its logic without your own specific approval.
The terms explained
- Advance Ruling
- A formal decision from the tax department on how GST law applies to a specific business transaction.
- Convertible Foreign Exchange
- Foreign currency that can be easily exchanged for other currencies, often a requirement for services to be classified as tax-free exports.
- Consideration
- The payment or value received in return for providing a service or good.
The ruling in detail
Authority for Advance Ruling
M/s 63 Ideas Infolabs Private Limited
GUJ/GAAR/R/2025/57 dated 24.11.2025 · Gujarat
Questions before the authority
- Whether the receipt of consideration in the form of non-voting, irredeemable preference shares would fulfil the requirement of "receipt of consideration" as referred in Section 2(6)(iv) of the IGST Act, 2017 and therefore there will be no liability to pay GST on the supply of the said services (customization and licensing of the proprietary platform) by the Applicant to the overseas client.
Facts
The applicant is engaged in the wholesale business of agricultural produce and has developed a supply chain management platform. They propose to customize this platform for an overseas client and grant a perpetual license in exchange for non-voting, irredeemable preference shares of the foreign entity. The applicant sought a ruling on whether this mode of payment qualifies as receipt of consideration under the IGST Act, thereby exempting the service from GST.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether receipt of preference shares constitutes receipt of consideration under Section 2(6)(iv) of the IGST Act | Not answered The Authority held that the question is outside the scope of Section 97(2) of the CGST Act. |
The Authority for Advance Ruling declined to answer the question. They determined that the primary issue of whether the receipt of preference shares constitutes convertible foreign exchange falls outside the scope of matters on which an advance ruling can be sought under Section 97(2) of the CGST Act. Consequently, the corollary question regarding GST liability was also left unanswered.
Reasoning
The Authority examined the scope of Section 97(2) of the CGST Act, which lists the specific matters on which an advance ruling can be sought. They concluded that the question of whether a specific form of payment (preference shares) satisfies the definition of 'convertible foreign exchange' under Section 2(6)(iv) of the IGST Act does not fall within the permissible categories. Because the main question was deemed outside their jurisdiction, they could not proceed to determine the ancillary issue of GST liability.
Provisions relied on
- Section 97(2) of the CGST Act, 2017
- Section 2(6)(iv) of the IGST Act, 2017
For the practitioner
This ruling serves as a **procedural dismissal** rather than a substantive decision on the taxability of non-monetary consideration. It highlights that the AAR will not entertain questions that require interpreting foreign exchange regulations or definitions of 'consideration' if they do not strictly align with the **statutory categories** listed in Section 97(2). Practitioners should note that this order does not provide a precedent for using preference shares as valid export proceeds for GST purposes.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/57_63_ideas_infolabs_private_limited_removed.pdf
Legibility of the scan, as read: high.
Prepared 14-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.