Taxation on esop from foreign companies

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BHUVANESHWER PRASAD (Querist)
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20 April 2012 Dear Team,

there is one of my client who is working for some company in india whose headquater is in USA. and he is enrol for employee stock scheme where the comapany gives his own share every month with lower than market rate.

now the question is if he sales these sales in a year (1) or after a year (2) then what will be the impact on taxation in india and is there any tax he need to pay to USA as well.

will this case attract short term and long term capital gain tax?

Please clarify.

Thanks

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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20 April 2012 He is serving in US and US laws will apply to him in India no taxation shall be applicable as ESOP of Indian company is taxable in India

BHUVANESHWER PRASAD

BHUVANESHWER PRASAD (Querist)
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20 April 2012 Dear agarwal,
Thanks for reply but client is not working in USA, he is working in India only just his company is USA based for an example sandisk or Goldman each etc. As he got share of such cos by ESOP. Now if he hold for more than a year there is no long term capital gain In india and before a year if he sale he will attract stcg. Now question is wheather he has to pay tax to Indian govt or he will pay tax abroad though he is in India only. What will be tax treatment if hold those share more than a year and if he does nt hold for a year.
please clarify. Hope you got my question.

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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20 April 2012 These shares cannot be traded in India and the sales will be outside India. If in US on sale of shares any tax is paid then the proportionate tax shall be allowed as rebate as per DTA. In India you can show the income under the same head as applicable to US. I think the shares are given in India so you can claim this to be income arising in India and also claim the lTCG.

As per Indian IT Act the provisions are as follows

(38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where—
(a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and
(b) such transaction is chargeable to securities transaction tax under that Chapter :
87[Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB.]
Explanation.—For the purposes of this clause, “equity oriented fund” means a fund—
(i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 88[sixty-five] per cent of the total proceeds of such fund; and
(ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D) :
Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures;]

Here, the STT shall not be paid by you so you have to hold it for 3 years and then sale it which will not attract any capital gains otherwise you have to pay short term capital gains.