Business Daily from THE HINDU group of publications
Sunday, Jan 27, 2008
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Business Daily from THE HINDU group of publications Sunday, Jan 27, 2008 ePaper | Mobile/PDA Version |
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Income Tax Corporate - ESOPs Markets - Stocks K.R. Srivats New Delhi, Jan. 26Equity shares of foreign companies allotted to employees in their Indian subsidiaries through employee stock option plans (ESOPs) have now been brought under the fringe benefit tax (FBT) net. The Finance Ministry has done away with a definition of “equity shares” in the existing guidelines on valuation of equity shares for the purpose of FBT on ESOPs. With the removal of the definition, official sources said that the meaning of equity shares has been widened to take the general meaning under the income-tax law and thereby include equity shares issued by foreign companies. “We have removed a doubt that had crept in the minds of tax experts. The earlier definition said equity shares would take the meaning as spelt out in Section 85 of the Companies Act. This meant that only shares issued by Indian companies would be covered under the valuation guidelines. So, we have done away with that definition and removed the reference to Indian Companies Act,” a CBDT official said. Securities valuationThe Central Board of Direct Taxes (CBDT) has also amended the income-tax rules to specify the valuation mechanism for securities other than equity shares. It has been specified that the fair market value of such securities would have to be determined by a merchant banker. These changes will take effect from April 1, 2008 and would apply in relation to assessment years 2008-09 and subsequent years. “Certain doubts had arisen after the notification of the valuation mechanism under Rule 40C. They are now sought to be clarified. The CBDT has now covered even securities other than equity shares by bringing a new Rule 40D. Under ESOPs, a company could issue securities other than equity shares, like warrants, etc. The valuation mechanisms for such securities have been spelt out,” Mr Vikas Vasal, Executive Director, KPMG, told Business Line. Budget 2007-08 had levied FBT on the value of securities or sweat equity share allotted to employees under ESOPs. The CBDT had later specified the mechanism for determining the fair market value of the equity shares for the purpose of levy of FBT. The CBDT had recently clarified that the Indian subsidiary of a foreign company would be liable to pay FBT on the shares of the foreign parent allotted to the employees of the Indian subsidiary by virtue of their employment with the Indian subsidiary company. FBT on ESOPs clarified ESOPs still plagued by many unanswered questions ‘Indian arms of foreign cos need to pay FBT on stock options’ More Stories on : Income Tax | ESOPs | Stocks
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