The Hindu Business Line : Why restrict borrowings from abroad?

The RBI in its wisdom seems to feel that the near carte blanche in the matter of end-use of the ECB (external commercial borrowing) funds has resulted in huge flow of foreign exchange into the country adding to the woes of the exporters as well as adding to the money circulating in the economy which it finds it difficult to sterilise beyond a point.

You must note that there is no bar to liberal automatic route; only the funds thus mobilised must be used for import of goods or services, the idea being what is raised in foreign exchange should also be spent in foreign exchange without being converted into rupees necessitating sterilisation by the RBI to suck out the excess liquidity.

The RBI would be inclined to relax this rigour in case the money sought to be brought in does not exceed $20 million.

MNC shares

I am working for a MNC which is listed on Nasdaq. I am covered under the company’s Restricted Stock Units (RSUs) programme. Under this programme, certain RSUs are allotted every year. These vest over four years. On vesting, equal number of shares are allotted free of cost.

Essentially you start owning the shares on vesting. If I hold these shares for a year from the day of vesting, does it become a long-term capital asset?

If I sell them after one year from the day of vesting, will the gains be taxed at 20 per cent? If I sell them after one year from the day of vesting and buy a residential house with the sale proceeds, are the gains exempt under Section 54F?

Satya, email

Before I answer your queries, I would urge you to find out whether the employer has any intention of passing on the burden of Fringe Benefit Tax (FBT) that he has to pay on the concession thus provided to you in the manner quantified in accordance with the rules to be prescribed in this regard. The right to pass on the burden has now become statutory.

As to your questions, well you start owning the shares on exercise of the option during the exercise period that follows the vesting period.

And from the day you acquire the shares you have to retain them for a period of twelve months so as to confer on them the status of long-term capital assets. Should you sell them thereafter through a recognised stock exchange in India, you would be spared of tax-liability except for the Securities Transactions Tax which in any case is but a small impost.

But if you sell it otherwise, say, to a friend or relative, and then it becomes taxable at the rate of 20 per cent with indexing benefit or 10 per cent without indexing benefit. You can ward off this liability by investing the sale proceeds in a residential house and claiming exemption under Section 54F as rightly pointed out by you.

Options under ESOS

I want to know whether a company which is at present unlisted needs to follow the guidelines laid down by SEBI (Securities and Exchange Board of India) relating to ESOS (Employee Share Option Scheme). Since our company is an IT-based unlisted company, which was listed earlier and was de-listed later, and now wants to get itself listed but before that it wants to grant options under ESOS to its employees who have contributed immensely towards the growth of organisation, to associate marketing companies which have enabled in selling their products and to the consultants who have provided the company timely and precious help. Is it possible to issue shares under ESOS to all these people by our company?

Radhika, email

SEBI guidelines obviously apply only to listed companies which alone come under its jurisdiction. But I don’t know how allotment of shares to consultants and marketing companies would make the grade as ESOS. At best, such allotments can be said to have been made in lieu of the services rendered by them.

S. MURLIDHARAN

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