The Hindu Business Line : ESOPs take the tax toll

The multinational company I work for has allotted some shares to me under an Employees Stock Option Plan. These shares have been sold outside India and the proceeds transferred to my bank account.

Will the gain from the transaction be treated as short or long term? Can I get any exemption if I reinvest the proceeds in a property? — Salil Kapoor

The gain will be treated as long term if the shares have been held by you beyond 12 months.

If the shares have not been held for this period, the gain will be short term. The gain will be taxed at 20 per cent (as increased by the appropriate surcharge and additional surcharge) if long term and at the normal rates of tax applicable to you if it is short term.

Exemption can be claimed under Section 54F on reinvestment in a residential house if the gain is long term and subject to satisfying the conditions in that Section. No exemption can be claimed if the gain is short term.

I am a retired Central Government employee aged around 75.

I purchased a plot of land measuring 300 square yards several years ago, and constructed a 1100-sq.ft house on it. The construction was done in the financial year 1983-84. The house now requires repairs, renovation and extension.

A bank is willing to grant a loan provided my son, who works in a public sector company, is a co-applicant. My son would be paying the entire EMI on the loan, out of his income.

Will my son be able to claim the tax benefits on the EMI paid? — V. Rama Rao

Your son will not be able to claim tax deduction on the EMI paid out of his income as the property does not belong to him but is owned by you.

I am a doctor and I am doing my MD. Can I claim the tax deduction on the tuition fees paid? — Remi Raj

No deduction can be claimed by you in respect of the tuition fees paid to the college. Section 80C only contemplates a deduction when the tuition fees is paid for the full-time education of the child of an individual while Section 80E considers a deduction in respect of interest on loan taken for pursuing higher studies.

Since you have not taken a loan and since the fees is for your own education, no deduction will be available.

A salaried employee, I have taken a loan for purchase of a flat in Mumbai. I however now stay in another house in another suburb.

Can I claim the exemption in respect of the HRA and also the tax benefits on the housing loan? — Nitin Lakhotia

There is no prohibition on making such a claim for deduction under Section 24 on the interest on the housing loan, the deduction under Section 80C on the principal repayment as also the claim for exemption under Section 10(13A) on HRA so long as you are paying rent.

The exemption under Section 10(13A) is available if you receive HRA and are also paying rent. The deduction under Sections 24 and 80C are available for the interest and principal repayment respectively on the loan. The provisions are independent of each other and the tax benefits can be claimed without any difficulty.

I hold shares in certain companies, and receive dividends from them. Is the dividend taxable? — Chandrahasa Vemuri

The dividend declared, distributed or paid by an Indian company is exempt in the hands of the shareholder and therefore there will be no tax in your hands.

I purchased 100 shares of IDEA Cellular Ltd. I held them for three months and then made an off-market transfer of the same to my wife, who sold them after holding the shares for a month.

Will the short-term capital gains arising from the transaction be taxable in my hands or of my wife? — Iyyappa

It is understood that you sold the shares to your wife after holding them for three months. The gain from the sale of shares to your wife will be taxable in your hands as short-term capital gains at the normal rates of tax applicable to you.

On the sale of such shares by your wife the gain will be taxable as short-term capital gains as stated above but if the sale has been through a recognised stock exchange where the Securities Transaction Tax was paid at the time of sale, tax will be charged at 10 per cent (as increased by the appropriate surcharge and additional surcharge).

If, on the other hand, the shares have not been sold to your wife but gifted to her, the entire gain will be taxable in your hands in the manner stated above.

I purchased 300 shares of Infosys before December 31, 2005 through a stock broker and paid the STT.

In July 2006 I received 300 bonus shares. In March 2007, I sold all the 600 shares through a recognised stock exchange. What will be the capital gains tax implications on such sale? R. K. Das

The shares that were originally acquired by you have been held by you beyond 12 months. The gain from the sale of these shares will be long term and therefore exempt from tax under Section 10(38).

The gain from the sale of bonus shares will however be treated as short term as these have not been held for a period exceeding 12 months. Such gains will be taxed at 10 per cent (as increased by the appropriate surcharge and additional surcharge) in accordance with Section 111A.