Taxhounds may once again spoil the sleep of a lot of people. This time it wont be the bark or bite but their deafening silence on valuation norms for fair market value of Esop shares.
The Central Board of Direct Taxes (CBDT) is formulating the guidelines that would be used for calculating the fringe benefit tax (FBT) and short-term capital gains tax. But, in the absence of a clarification, taxpayers who exercised their option and later sold the shares will have to pay a penal interest (1% per month) on their liability.
Unlike for FBT, the date of advance payment for short-term capital gains tax on employee stock option plan (Esop) has not been extended. May 15 and September 15 were the two deadlines for advance tax payments.
While the government has provided relief to employers by extending the FBT payment deadline, first to September 15 and then to December 15, the employees, who can also be affected with respect to tax on short-term capital gains, have been ignored. I hope the government will provide similar relief to them, says Ernst&Young partner Amitabh Singh.
Short-term capital gains tax is applicable if the shares or securities are held for a year or less. It is levied at the rate of 30% if the transaction has not attracted securities transaction tax (STT). If STT has been paid, the rate is 10%. The tax rate would be 30% for employees of unlisted companies and multinationals listed outside India.
A large number of companies had asked the employees to exercise their options soon after the announcement of FBT on Esop in the Budget. Many employees sold Esop shares to take the advantage of the bull run and became liable for short-term capital gains tax.