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Answered! Your queries on tax, ESOPs

May 23, 2007 08:58 IST
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The Finance Bill has become an Act now. The Employee Stock Option Plan (ESOP) has come under the purview of the Fringe Benefit Tax from April 1, 2007. Some changes have been introduced in ESOPs in the Finance Act.

These changes are quite important in the sense that it has clarified that the most important thing is the date of investment. The day a company gives its employees the option of ESOPs, FBT will be applicable on the value of shares as on that day.

However, the employer pays the tax the day an employee exercises options.

So, in a nutshell, the employer has to pay the FBT on ESOPs, at the rate at which the ESOPs were given to the employees, and has to be paid once the employee has exercised the options.

The Act also clarifies that if the employer wants, it can charge the FBT from employee.

Excerpts from an interview with Subhash Lakhotia on CNBC Aawaz:

My HUF has earned to the tune of Rs 200,000 this year. I have deposited Rs 60,000 in the PPF accounts of each of my children (I have two kids). Do I get tax benefits?

-- Kanti Lal, Bangalore

HUF will get tax benefits under 80 C of the IT Act since the money (Rs 120,000) has been deposited in the PPF accounts of the children, both HUF members. Tax benefits will be a maximum up to Rs 100,000. So, after deducting Rs 100,000, the HUF is left with Rs 100,000. Since it is less than the exemption limit, you pay no tax.

What is the tax liability on the income from intra-day trading in case of both short-term and long-term capital gains?

Rahul Kohli, Chandigarh

Income from intra-day trading will be treated as speculative income. If you sell shares within one year of purchase, its profits will be treated as short-term capital gains and taxed at the rate of 10 per cent plus surcharge plus education cess. But if you keep it for more than one year, no tax is charged.

Is the dividend on stocks and mutual fund taxable?

Yes, it's tax-free.

I work for a foreign firm. Will ESOPs in dollars be taxable in rupees?

Rajiv Patel, Ahemdabad

Yes, the employer has to pay the tax. The government will soon come up with a detailed guideline for the calculation on the value of the benefit of ESOPs.

Will tuition fee be treated as income from other sources or as personal income?

Indrajit Chatterji, Allahabad

It will be treated as income from other sources. Tax benefits are, however, same in both the situations.

I have a demat account. Do I file its tax returns separately?

Vijay Agrawal, Surat

You don't need to file separate return for the demat account. But remember to fill up the column related to annual information report in the latest tax return form.

How can I claim tax deduction for annual performance bonus?

Anu Agrawal, Delhi

It is fully taxed and therefore you get no tax deduction. Your employer will deduct tax before giving you the bonus.

Who can give gifts?

Gift tax law was abolished in the income tax law. Whether it is cash or kind, gifts attract no gift tax. As per the provisions of the income tax laws, if gifts from a non-relative are valued at over Rs 50,000, it will be taxed. But a blood relative can give a gift of any amount. However, a woman should not accept gifts from husband, mother-in-law and father-in-law to shun clubbing of income with husband's income. A man  can receive gifts from all relatives except his wife. Gifts can be handed over by accepting it on a plain paper and one doesn't need a stamp paper.

I have sold a residential property and incurred long-term capital gains. Can I invest it in wife's name?

Arun Khanna, Noida

Investment should be in the name of the person who sells the property.

Now, it is the mandatory to file returns on the new return form. When will the new form be available?

Anil Kumar Agrawal, Bhuj

The new forms are required for filing tax for the assessment year 2007-2008. New income tax form can be downloaded from the department's Web site, though it is not available with income tax office.

New forms are a must for filing tax for the assessment year 2007-2008. If you don't know how to fill up the form, there are inspectors to help you with it at the Income Tax Office. The service is free of cost.

How much tax deduction can one claim on the rent from commercial and residential properties?

Vivek Shah, Varodara

It is 30 per cent standard deduction on the rent from commercial, residential or industrial properties. To arrive at the annual value, deduct house tax from the gross rent. You will get 30 per cent deduction, irrespective of the fact whether you go for repairs or not.

I used the furniture provided by my bank for six months. Do I pay a perquisite for the whole year?

Mahesh, Ahemdabad

If the employer provides you with home furniture, 10 per cent of the original value of the furniture will be added to your income every year. The original value is the cost at which the company has bought the furniture.

I completed 65 years on August 1 last year. Will I be senior citizen for 2008-2009?

Arjan Gera, Delhi

Yes. And you will get tax deduction for the whole year. If your income is to the tune of Rs 195,000, you pay no tax.

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