Option Income in India - 9/4/08

http://www.caclubindia.com/forum/messages/2008/9/13845_when_to_sell_your_stock_option_to_avoid_higher_taxes.asp

You could end up paying a higher tax on selling your stock option

granted by the employer by miscalculating the duration of holding of

these shares if you ignore a recent tribunal order, clarifying on

such calculation.



Dismissing the appeal of a professional who was given stocks by his

US-based employer, the tribunal said that the duration of holding

the company stocks will be calculated from the date when the

employee has the right to excercise the stock option, that is a

right on the shares to purchase them or sell them which could be

later than date when the stock option was granted.



Clarifying on the calculation of the duration, the Bangalore bench

of Income Tax Appellate Tribunal said, " till the shares are

allotted, an assessee is not a subscriber of the shares of the

company and is not considered a member therefore, he could not have

trasnsferred any shares prior to the date on which he became a

member".



The employee of the US-based software company Winphoria Networks had

been taxed at the rate of 30 per cent as the duration of holding the

stocks by him was less than 12 months. As per the tax laws, holding

a stock option given as an option for a period of less than 12

months attracts a tax rate of 30 per cent whereas holding shares for

a period of more than 12 months could reduce the tax burden by 10

per cent.



Besides, the bone of contention between the employer and the tax

officials was that the employer considered holding the shares from

the date it was vested on him that is the day when the option was

granted, while the Tax department took into account the the period

of holding from the day the assessee became the shareholder or

actually purchased the shares.



The US-based software company Winphoria Networks in this case had

announced an Incentive Stock Option scheme for Winphoria India

employees through which the assessee was granted the right to

purchase 1.25 lakh shares of the company but could excercise the

option or purchase of only 25 per cent shares at that time. The

employee could own the rest of the shares after a year and that too

only 6.25 per cent of the total shares in each quarter as per the

agreement between the employer and the company.