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ESOP shares are taxed at two stages: at the time of allotment and when you sell them

On the basis that your services qualify as employment and hence your earnings from the Singapore employer qualify as salary, and such earnings for performing services in India are taxable in India, regardless of the place of receipt of the salary

I have a job offer from a Singapore-based company. I will be working from India and the salary will be credited to my India account. As there will not be any Form 16, I need to understand if there are any Goods and Services Tax (GST) or other tax implications?

—Name withheld

If you render services to the Singapore-based company under a contract of employment, the payments you receive are treated as salary. You are liable to pay income tax in India on these earnings and are not be liable to GST. If your services are not rendered under an employment arrangement, you may need to evaluate GST implications.

On the basis that your services qualify as employment and hence your earnings from the Singapore employer qualify as salary, and such earnings for performing services in India are taxable in India, regardless of the place of receipt of the salary. Accordingly, all salary-related compliances will trigger for the employer and employee.

You will need to file a tax return in India with appropriate disclosure in your tax return form, depending on your residential status and level of income.

My employer provides the option to invest in its shares. The company is listed in France, not India. All the money invested goes to a holding body that buys shares that are held as corpus. For every Indian rupee invested, the company invests the same amount. The corpus of equivalent value is held in euros. I invested an amount each year between 2012 and 2016, ending June.

The company had deducted some tax from my salary for every year that I invested, as perquisite. In July 2017, I settled for cash payout of my corpus. How will the tax liability be calculated for me, this year, in the tax return to be filed after April 2018?

—Avisek Goswami

Shares acquired under an Employees Stock Option Plan (ESOP) are taxed at two stages, under the Indian tax laws. First when the specified securities (such as shares) are allotted to you by your employer, and once again when you sell the shares that are allotted. It is presumed that your employer has appropriately identified the India taxes due by you at the first stage (when specified securities were allotted to you each year from the amounts invested by you along with the matching investments made by the employer) and reported the perquisite value taxed in the Form 16 issued each year.

The second stage of taxation arises when you sell your holdings or corpus in the holding body. The gains received by you from the sale of your holdings will be taxed as capital gains. The capital gains are computed as the difference between the sale proceeds from your holdings and the fair market value (FMV) of the shares that was taken into consideration by your employer while determining the perquisite value. If you had held the shares directly for 24 months or less post allotment until the date you sold them, any gain arising from the sale is taxable as a short term capital gain at the normal tax rates applicable to you.

If these shares were held by you for longer than 24 months, the gains will be treated as long-term capital gains. You can index the FMV referred above based on specified cost inflation indices (CII) and reduce the indexed cost of acquisition from the sale proceeds to arrive at the taxable long-term capital gain. The long-term capital gain is taxable at a flat rate of 20%. Surcharge, as applicable, and cess is payable in addition to the taxes payable in either case.

In case you held units or other similar securities (other than shares) in the holding body, the period of holding for classifying as long-term would increase to 36 months.

Parizad Sirwalla is partner (tax), KPMG.

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