Personal Finance

Your Taxes

Sudhakar Sethuraman | Updated on October 04, 2020 Published on October 04, 2020

I am a senior citizen and retired in 2013. In FY2019-20, for which my I-T return is yet to be submitted, I had purchased shares from my company under ESOP. I paid ₹47 as granted price per share when the market price was around ₹90. As per norms, the company recovered a TDS of around ₹1,40,000 on a perquisite value of ₹5,10,000( capital gains), i.e., around 30 per cent of the capital gains was recovered from me.

1. Since I have not received any income in my books by way of this transaction, can I claim refund of this TDS amount in my I-T return for FY2019-20? I have not sold these shares since the market price came down drastically. Since there is no likelihood of the market price improving in the near future and I have to retain these shares or sell at a loss, what is the logic in payment of I-T on the virtual perquisite value?

2. In the event of my selling the shares in FY2020-21 at a loss, can I set off this loss against my pension income or any other income? Since I will be having no capital gain in that FY, I have no other option to set off my loss. As a pensioner, I find no logic in retaining the TDS without receipt of actual income in my account.

3. Since my total income is less than ₹50 lakh, can I use ITR-1? Please advise me.

KS Harikumar

1. The Income Tax Act specifically provides for payment of salary tax at the time of allotment of stock options. The difference between the Fair Market Value (FMV) as on exercise date and the amount recovered from the employee is considered as perquisite (under the head ‘Salaries’) and taxable in the hands of the employee. As per Section 192 of the I-T Act, the employer is obliged to withhold tax on such perquisite amount at applicable tax rates.

Since stock options are taxable in the year of allotment (even though the employee has not received actual cash), you will not be able to claim the taxes withheld as a refund in your tax return.

2. Capital gains/loss will arise only when the allotted shares are ultimately sold in the market. While selling the shares allotted under ESOPs (employee stock ownership plans), the difference between the sale price and purchase cost, which is FMV as on the exercise date, shall be taxed as capital gain/loss.

As per Section 70 of the I-T Act, long-term capital loss (LTCL) can be set off only against long-term capital gains (LTCG). Any LTCL not set off in the current FY shall be eligible to be carried forward to future eight financial years and be set off against any LTCG arising in future eight FYs.

3. ITR-1 can be used only by resident individuals (other than not an ordinarily resident) having income of up to ₹50 lakh from salary/pension (or) one house property (or) other sources only.

ITR-1 cannot be used in the following circumstances (exclusions):

· If an individual is a director in any company or holds unlisted equity shares at any time during a particular FY

· If an individual has income from more than one house property

· If an individual has capital gain income

· If an individual has brought forward losses or losses to be carried forward under any head of income

· If an individual has foreign sourced income or foreign assets at any time during a particular FY

· If an individual has agricultural income more than ₹5,000.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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Published on October 04, 2020
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