Tax Treatment Of Capital Gain On Sale Of Shares, Debentures, Etc. Received Under ESOP in case of NRI

[Capital Gain of an NRI could be Completely Exempt from Income Tax]

The Finance Act, 2000 had amended the definition of Section 47 relating to transaction not regarded as transfer. It was provided in Section 47 that any transfer of a capital asset under gift or an irrevocable trust is not a transfer and hence not liable to tax on capital gains. The new amendment to this provision by the Finance Act, 2000 provided that this clause would not be applicable to transfer under a gift or an irrevocable trust of the capital asset being shares, debentures or warrant allotted by the company directly or indirectly to its employees under the employees stock option plan or scheme. The effect of this new amendment is that the shares, debentures, etc. received under ESOP would be treated as a transfer when the same are gifted by the employee. Thus, if the employee receives any share or debenture, etc. from his employer without any cost or at a concessional price and makes a gift of such shares, debentures, etc. to some other person, then it will be treated as a transfer and would be subject to tax on capital gains. Section 48 was amended to provide the mode of computation of capital gain in respect of gift, etc. of the shares, debentures, etc. received under ESOP. It was also provided as per amendment by the Finance Act, 2000 that if the shares, debentures, etc. which are received by an employee under employees stock option plan are transferred through gift, etc., then the value on the date of such transfer would be deemed to be the full value of the consideration received or accruing as a result of the transfer for the purposes of this section and thus, there will be a liability to capital gain in the situation where the shares, debentures, etc. received under ESOP are gifted away. This is effective from the A.Y. 200 1-2002. The value of ESOP will be liable to FBT for the company. At a later date when the employee sells such shares, etc., received in ESOP and if Capital Gain arises from the transfer of such shares, etc. then from the sale price would be deducted the value of Fringe Benefits which have been taxed in the hands of the employer. The Central Board of Direct Taxes will prescribe the mode of determination of the fair market value. The Fringe Benefit Tax on the entire value on the date of vesting would be payable @ 30% plus surcharge land cesses.
 
Capital Gain of an NRI could be Completely Exempt from Income Tax
1. Exemption of Long-Term Capital Gains regarding Residential House Property (Section 54)
2. Exemption of Long-Term Capital Gains from any Capital Asset On Investment In House Property (Section 54F)
3. Exemption of Long-Term Capital Gains On Investment In Bonds of NHAI & REC
4. Exemption to facilitate the Conversion Of Partnership Firm into a Company
5. Exemption from the Levy Of Capital Gains Tax to facilitate Conversion Of Sole Proprietary Concern Into A Company
6. Computation of Capital Gains In Real Estate Transactions
7. Other Important Exemptions Regarding Capital Gains Available to NRI
8. Cost Inflation Index And Computation Of Capital Gains in case of NRI
9. Reduction Of Tax Rate On Long-Term Capital Gains In Regard To Shares And Securities
10. Concessional Rate Of Tax On Income From Certain Global Depository Receipts
11.Tax Treatment Of Capital Gain On Sale Of Shares, Debentures, Etc. Received Under ESOP
12.Provisions Relating To Set-Off Of Long-Term Capital Loss And Carry Forward Thereof ModifiedSections 70 and 74
13. Exemption Of Long-Term Capital Gains On Securities And Lower Tax On Short-Term Capital Gains
14. Issue of Foreign Currency Exchangeable Bonds Scheme, 2008
15. Miscellaneous provisions’ regarding Capital Gains in case of NRI
 
 
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