The Hindu Business Line : Tax implications of ESOPs

I work in a multinational company in India. The parent company of my employer is in the US and the shares of the said company are listed in the New York stock exchange.

The parent company has allotted shares to me under a stock option scheme in February 2005. I paid no money for the options.

The options were sold and the difference between the sale price and the grant price was paid to me in rupees. What is my tax liability in respect of the same? — S. Murugan

Section 17(2) as it stood at the relevant point in time provided that employees stock option shall not be regarded as a perquisite and taxed in the hands of the employees if the scheme or plan was in accordance with the guidelines issued in this behalf by the Central Government.

Given that the stock options were given to you by the US parent company, it is very unlikely that the same is in accordance with the guidelines issued by the Central Government.

Therefore, the difference between the market value as on the date of exercise of the option and the price at which the shares were allotted to you will be treated as a perquisite and would be taxable under the head salary in your hands at the normal rate of tax. The difference between the selling price and the market price as on the date of exercise of option (duly indexed if the gain is long-term) will be taxed as capital gains in your hands.

I was allotted 1,875 shares of my employer company under an Employees Stock Option Scheme. The shares are listed on Nasdaq. The shares have vested with me from May 2004 on the basis of 52.083 shares per month. In May 2007, my employer company was acquired by an European company. Since then, no shares have been vested with me under the scheme, as a result of a fresh understanding with the employer. What are the fringe benefit tax implications of the stock options that I hold so far? — Jatin Kikani

The Finance Act 2007 has amended the provisions relating to fringe benefit tax to provide that employees stock option and sweat equity will be subject to fringe benefit tax.

Section 115WB (1)(d) provides for the same to be subject to fringe benefit tax at the time of allotment or transfer.

The value of the same is to be taken on the basis of the fair market value on the date on which the option vests with the employee as reduced by the amount actually paid or recovered from the employee in respect of the same.

The fair market value is to be determined in accordance with the method that may be prescribed by the board. It may be noted that the charge arises on allotment or transfer of the said shares to the employees. It may also be noted that these provisions are applicable from April 1, 2007.

Therefore, fringe benefit tax will be payable in respect of the employees stock options.

Fringe benefit tax is normally payable by the employer but it may also be seen that

Section 115WKA provides that it will be legal for an employer to recover the fringe benefit tax from an employee even where the agreement or scheme was made prior to April 1, 2007.

I presently reside at New Delhi where I am employed. I have taken a housing loan to purchase a house in Kolkata. I stay in a rented house in New Delhi.

Will it be possible for me to claim the exemption in respect of HRA that I receive from my employer? — Ranjan Bhattacharya

Section 10(13A) allows an exemption in respect of HRA provided the employee is in receipt of HRA and where he is actually paying rent for an accommodation occupied by him.

In your case there should therefore be no difficulty in the claim of exemption u/s10(13A).

The fact that you own a house in Kolkota will in no way affect your claim for exemption u/s.10(13A).

I am running a training institute in India and I provide training services to consultants in the US. This training is provided to them Online. The payments are made to me into my bank account in India.

Are the sums I receive for such training provided taxable in India and if so at what rate is it taxable? — Kali

The sums received by you for providing training online to consultants in the US and credited into your bank account in India will be taxable in India.

This income will be taxable at the normal rates of tax applicable to an individual.

When my wife was employed she took a housing loan from her employer to purchase a house in her name.

The tax benefits in respect of the repayment of the loan and the interest thereon were claimed by her as a deduction.

After my wife resigned her job, the housing loan was transferred to a bank where both my wife and I jointly obtained the loan.

Since then I have been paying the EMI out of my salary.

Can I claim the tax benefits in respect of the EMI paid by me? — Anand Bhat

Apparently the fact that your wife has claimed the tax benefits on the repayment of the earlier loan taken from her employer and the interest thereon coupled with the fact that the house was registered in her name go to show that she is the real owner of the house.

Hence it will not be possible for you to claim the tax benefits in respect of the EMI paid by you, merely because of the fact that the same is paid out of your income.

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