After serving a company for more than 20 years, I had to surrender shares I got as ESOP, on my resignation from the company. The shares are not listed in India. Please inform whether the proceeds I received on surrendering the shares attract capital gains tax. If so, at what rate, and whether can I avoid paying the tax if the gains are utilised for purchasing any bonds or for acquiring a residential plot/ house. In case of bond purchase, would I have to pay any tax when they mature?

Akhilesh

As per the Income Tax Act, gains arising from sale of a capital asset being unlisted shares held for more than 24 months shall be treated as long- term capital gains (LTCG). ‘Surrendering unlisted shares (Employee Stock Option Plan - ESOP)’ to the employer company would be regarded as transfer/sale.

Assuming that you have held the shares for more than 24 months, the gains realised on surrendering the shares shall be regarded as LTCG.

The value of the perquisite taxed earlier upon the allotment of the employee stock option can be treated as the cost of acquisition. LTCG is calculated by reducing indexed cost of acquisition from the surrender value. LTCG is taxable at 20 per cent, increased by surcharge (if applicable) and health and education cesses at the rate of 4 per cent.

Exemption can be claimed under Section 54F if the sale proceeds are invested in buying a residential property in India either one year before or two years after the date of transfer (or) is used for constructing a residential property within a period of three years from the date of transfer.

Exemption shall be available only when the taxpayer doesn’t own more than one residential house property (excluding the new property) on the date of transfer of the long-term asset.

Further, the new property should not be transferred within three years from the date of its acquisition, and no other property should be purchased/ constructed within 2-3 years, respectively.

Exemption under Section 54EE could be claimed by investing the capital gains in specified units issued before April 1, 2019, with a lock-in period of three years. Th einvestments should be made within six months from the date of transfer of the capital asset and the value of investment cannot exceed ₹50 lakh.

There is no specific tax exemption for investment in residential plot of land.

In the Q&A published in the column on December 9, 2019, the query says that the person has a brother who is an Australian citizen and refers to him as NRI. The response also talks about provisions applicable for NRIs. As India does not allow dual citizenship, if the person is an Australian citizen, can he be still an NRI? Do the provisions discussed apply to a Person of Indian Origin (PIO card holders) which he can be, although he is an Australian citizen?

N Chandrasekaran

Under the Foreign Exchange Management Act, 1999 (FEMA), an individual qualifies to be a Non-Resident Indian (NRI) if he/she is a citizen of India and is a “person resident outside India”. As a result, a person who is an Australian citizen should not be considered as NRI. However, such an Australian citizen may qualify to be a Person of Indian Origin (PIO), provided any of the following conditions is fulfilled: (a) He has, at any time, held an Indian passport, or (b) He or either of his parents or any of his grandparents were a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955, or (c) The person is a spouse of an Indian citizen or a person referred to in (a) or (b).

Please note that effective January 2015, the concept of PIO has been subsumed with Overseas Citizen of India (OCI).

Further, as per FEMA, an NRI can transfer any immovable property in India to a person resident in India and also acquire immovable property in India (other than agricultural land/farm house/plantation property). These foreign exchange regulations are also applicable to OCI cardholders.

I purchased 100 shares of DLF through IPO in 2007 at ₹ 520. If I sell these shares now, which purchase price will be considered for deciding the long-term capital gain or loss — the IPO price or the price as on January 31, 2018 which, is ₹259.6?

Uttam Sawant

Long-term capital gains (LTCG) on sale of STT (Securities Transaction Tax) paid equity shares exceeding ₹1 lakh shall be taxable under Section 112A at 10 per cent. Further, the surcharge (if any) and health and education cess at 4 per cent shall apply. For the purpose of computing LTCG, the cost of acquisition shall be the higher of the following: actual cost of acquisition; or lower of (i) fair market value (FMV) of such share on January 31, 2018 (highest quoted price) or (ii) full value of consideration as a result of transfer.

As the actual cost of acquisition is higher than the FMV as on January 31, 2018, the cost of acquisition for the purpose of computing LTCG shall be ₹520.

The writer is Partner, Deloitte India.

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