tax on esop
This query is : Resolved
15 July 2010
hi friends..
can any body clarify me regarding tax on esop if a non resident sales or transfers the share he got from his employer in india. he is a foreigner.pls clarify me whether he will be taxed in india? and if yes how??
can any body clarify me regarding tax on esop if a non resident sales or transfers the share he got from his employer in india. he is a foreigner.pls clarify me whether he will be taxed in india? and if yes how??
CA Sanat Pyne
(Expert)
15 July 2010
Yes he is taxable in india. just check this example:
Lets see tax aspect with an example:
Mr. X is given an option to buy 1000 shares of employee company within a period one year @ Rs.200/-. Market value of the shares is Rs.500/-.
Mr. X exercise option immediately and buy shares at Rs.200/-
So he will be taxed at 1000 X Rs.300/- (being the diff. Between market price and purchase price) = Rs.300000/- @ 33 % (taxable perquisite). For calculating taxable perquisite, market value of shares at the time of option exercised is considered.
Now if he sale the shares, within one year at Rs.1000/- so ,his profit will be taxed at normal rate i.e. short term capital gain.
Tax will be on Rs.1000 (Sale Price )minus Rs.500 (Market value at the time of option exercise date)= Rs.500 X 1000 (Shares) =Rs.500000/- . This Rs.500000/- will be taxed at normal rate of tax. OR alternatively ,he can sale after one year (Price may not be attractive at that time) and pay 10 % long term capital gain tax.
Hence taxable perquisite is Rs.300000/- and Capital gain is Rs.500000/-.
Lets see tax aspect with an example:
Mr. X is given an option to buy 1000 shares of employee company within a period one year @ Rs.200/-. Market value of the shares is Rs.500/-.
Mr. X exercise option immediately and buy shares at Rs.200/-
So he will be taxed at 1000 X Rs.300/- (being the diff. Between market price and purchase price) = Rs.300000/- @ 33 % (taxable perquisite). For calculating taxable perquisite, market value of shares at the time of option exercised is considered.
Now if he sale the shares, within one year at Rs.1000/- so ,his profit will be taxed at normal rate i.e. short term capital gain.
Tax will be on Rs.1000 (Sale Price )minus Rs.500 (Market value at the time of option exercise date)= Rs.500 X 1000 (Shares) =Rs.500000/- . This Rs.500000/- will be taxed at normal rate of tax. OR alternatively ,he can sale after one year (Price may not be attractive at that time) and pay 10 % long term capital gain tax.
Hence taxable perquisite is Rs.300000/- and Capital gain is Rs.500000/-.
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CA. Pradeep Nayak
(Expert)
15 July 2010
During the FBT era, no FBT was applicable on ESOP given to a non resident if he was resident outside India through out the vesting period, else it was to be taxed proportionately. However, the new perquisite rules are silent on this issue. Going by the same view, ESOP given to a non resident will be proportionately taxable for the no. of days he was resident in India.
However, where the non resident transfers the shares which he received from his employer as ESOP, the difference between the selling price & the FMV on the exercise date will be treated as capital gains taxed accordingly.
However, where the non resident transfers the shares which he received from his employer as ESOP, the difference between the selling price & the FMV on the exercise date will be treated as capital gains taxed accordingly.
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