I am an Indian resident working with an Indian subsidiary of a US-based parent company which is listed in the US. My company had allotted me shares of the company under ESOPs. Relevant tax was deducted by my employer at the time of allotment of these shares. I want to know whether the profit arising at the time of sale of these shares will be taxed as capital gain? If yes, what are the rules for short term and long term gain? Please let me know the tax rates applicable for short term and long term capital gains? Can we take the benefit of indexation while computing the capital gains? Can we avail the benefit of section 54F by investing these gains in residential property? Do we need to invest total sale consideration or just the amount of capital gains?
- A Jha
By Balwant Jain, a tax and investment expert
Any profit arising on sale of the shares allotted under the ESOP or any similar scheme are taxed under the head capital gains. The cost of such shares shall be taken as the fair market value of such shares on the date of allotment. Any excess over such cost shall be treated as capital gains. Since these shares are not listed in India, the profits on sale of the same shall be taxed as short-term capital gains if these shares have been held for not more than 36 months on the date of sale from the date of allotment. Such short term capital gains shall be treated like your regular income and taxed at the slab rate applicable to your aggregate income.
If these shares have been held for more than 36 months, the profit on such gains shall be treated as long term capital gains and you will be eligible to claim indexation benefit while computing the capital gains. In case the shares are being sold after 36 months, you will be able to claim the exemption under Section 54F if you invest the sale consideration for acquiring a residential house within specified time limit. In case you do not wish to avail the exemption, you will have to pay tax on the indexed capital gains at a flat rate of 20 per cent and applicable surcharge and cess.
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