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T. Banusekar

I AM an employee of a company whose shares are listed and are part of the BSE 500 shares. The employer company offered shares to me under an Employees Stock Option Plan. I have exercised the option and purchased the shares at the option price. These were acquired by me in January 2004. I would like to know whether the gain on sale of these shares would be exempt from income-tax?

M. Raja

Reply

Exemption under Section 10(36) is available if the following conditions are fulfilled:

The income arises from the transfer of a long-term capital asset;

The long-term capital asset is an eligible equity share in a company;

The share was purchased on or after March 1, 2003, but before March 1, 2004; and

The share was held by the assessee for 12 months or more.

Eligible equity has been defined in the section to be shares purchased in the secondary market and where such share is a constituent of the BSE 500 index on March 1, 2003, and where the purchase and sale is entered into on a recognised stock exchange in India.

If the share is allotted through a public issue on or after March 1, 2003, and is listed on a recognised stock exchange before March 1, 2004, and the transaction of sale is entered into on a recognised stock exchange in India, the condition stands satisfied.

The shares allotted under an employee stock option plan are neither acquired in the secondary market through a recognised stock exchange nor are they allotted through a public issue. Therefore, the gain, if any, will not be exempt since the condition stipulated by the section for getting the exemption is not satisfied.

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