Question: I am an Indian resident employed with an Indian subsidiary of a US-based parent company listed in NASDAQ. The parent company has provided us with shares through ESOP schemes. Will the profits made on the sale of these shares be taxable in India? If yes, what are the holding period requirements for short-term and long-term capital gains and the tax rates for short-term and long-term gains in this case? Can we take the benefit of cost inflation indexation here?
Answer: Any profit arising on the sale of shares allotted to you under the ESOP or any similar scheme is taxed under the head “Capital Gains” in India. Since the shares allotted to you are listed on Nasdaq and not in Indian stock exchanges they would be sold on that stock exchange and would not be subjected to Securities Transaction Tax (STT) and therefore provisions of Section 111A and 112A will not apply. The profits made on such shares shall be taxed as long-term capital gains if these shares are held for more than 24 months. You are entitled to claim indexation for computing the long-term capital gains.
Long-term capital gains are taxed at a flat 20% after indexation. If the shares are sold within 24 months, the profits shall be taxed as short-term capital gains. The short-term capital gains are treated like your regular income and get taxed at a slab rate applicable to you
The holding period shall start from the date of allotment of the shares and not from the date of allotment of the ESOPs. I presume your employer had deducted/collected tax on the difference between the fair market value of the shares and the exercise price on the date of allotment. So when you sell these shares, the fair market value of such shares on the date of allotment shall be treated as your cost. Any excess realised over such cost shall be treated as capital gains.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
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Updated: 20 Sep 2023, 08:38 AM IST