T. Banusekar

I work for an unlisted company. I have been allotted shares under an employee stock option scheme. The options were exercised by me partly in June 2006 and March 2007 during which time the shares were also allotted to me.

I now propose to resign from my job; the company would buy back the shares at book value. What will be the tax treatment on the buy back of shares by the company? —

S. K. Johari

The shares allotted to you in June 2006 will be a long-term capital asset as it has been held by you for a period exceeding 12 months.

The shares allotted to you in March 2007 will be a short-term capital asset if transferred now as it has been held for less than12 months.

You will also have to examine whether a perquisite would have arisen at the time when the stock options were offered to you.

No perquisite will arise if the plan or scheme is in accordance with the guidelines issued in this behalf by the Centre. The quantum of capital gains will depend on this factor.

In any case the capital gains will be chargeable at 20 per cent where the gain is from the transfer of a long-term capital asset and at the regular rates of tax applicable to you where the gain is from the transfer of a short-term capital asset.

These rates will have to be increased by the appropriate surcharge and additional surcharge.

I work for a foreign company in India. The company allotted shares to me under an employee stock option at $3 per share.

These shares are listed in the New York Stock Exchange. If I were to sell these shares in the New York Stock Exchange and remit the money into India what will be my tax liability? —

Digvijay Kumar, Ragini

Your query does not indicate when the shares were allotted to you. If the allotment was before April 1, 2007, a perquisite would have arisen in your hands as it may not have been possible for your employer, a foreign company, to comply with the guidelines issued by the Central Government.

You may note that if the guidelines are not complied with, a perquisite will be chargeable to tax in your hands.

The value of perquisite would be the difference between the market value as on the date of allotment and the price at which the shares were allotted to you.

On the sale of the shares, capital gains would be chargeable to tax. If the gain is long term, it will be taxed at 20 per cent and if it is short term at the regular rates applicable to you.

The tax rates are to be increased by the appropriate surcharge and additional surcharge.

If the shares were allotted to you on or after April 1, 2007, the Fringe Benefit Tax will be payable by the company on the difference between the fair market value on the date on which the option vests in you as reduced by the amount actually paid by you to the employer or recovered from you by the employer.

The fair market value is to be determined in accordance with the method as may be prescribed by the Board; this has not been done so far.

On the sale of the shares, the difference between the selling price and the fair market value will be treated as capital gains and charged to tax in the manner stated above.

If the sale of the shares and the acquisition were in foreign currency, you will have to apply the conversion rates based on the rates prevailing on the date of acquisition and sale respectively to arrive at the capital gains in Indian currency.

I have remitted to the school for the education of my child admission, special, tuition and computer fees. Will these qualify for deduction under Section 80-C? —

A. V. Balasubramaniam

Section 80C allows a deduction in respect of tuition fees paid (excluding any payment towards any development fees or donation or payment of a similar nature), whether at the time of admission or thereafter,

To any

university, college, school or other educational institutions situated within India

For the

purpose of full time education of any two children of the individual

Of the items listed by you, the admission fee does not appear to be in the nature of tuition fees and hence will not qualify for the deduction under Section 80C.

The other items of fee paid should qualify for the deduction under the Section.

I work for a public sector bank from which I have taken a housing loan. The loan carries an interest of 9 per cent per annum which is the rate at which the bank gives loan to customers who are not employees. There is therefore no concession given to me as being an employee.

The State Bank of India however advances similar loans to non- employees at 9.25 per cent.

Will there be a perquisite arising as a result of the said loan taken by me? —

S. V. R. P. Rao

Rule 3 of the Income-Tax Rules provides that the value of benefits resulting from the provision of interest free or concessional loan for any purpose made available to the employee or member of his household is to be determined as the sum equal to the interest computed at the rate charged per annum by the SBI as on the first day of the relevant year in which the loan for the same purpose was advanced and is to be computed on the maximum outstanding monthly balance as reduced by the interest if any actually paid by the employee or member of the household.

The basic requisite for a perquisite to be charged to tax under this rule in respect of interest would be that the employee should have been provided with an interest free or concessional loan.

In your case, since the loan is neither interest free nor is there a concession, given that the same rate of interest is charged from outsiders as well by your employer, no perquisite will arise in your hands.

Mail your queries to

taxtalk@thehindu.co.in

or by post to

‘Tax Talk’, Business Line, Kasturi Buildings,

859, Anna Salai, Chennai-600002

(This article was published in the Business Line print edition dated July 22, 2007)
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