I've seen your answers to tax queries raised by readers of rediff.com and find your answers quite useful. I too have a question in this regard, which I've asked below.

I was an NRI working abroad at a startup in the UK during which time I vested stock options as part of my compensation. I returned to India about 2 years ago and now my tax status is an Indian resident.

The startup has gone public in the UK stock market now, and I would like to know if I have to file/pay advance tax when I either exercise & sell and/or only exercise these stock options, OR, can I just file my return as usual in the next financial year before the 31-Jul deadline as usual?

Ans: Senior citizen not having business income are not required to pay advance tax

Ans: When you sell shares and make a profit, the tax implications depend on the holding period and the type of capital gain—long-term or short-term. Here's how the tax will be calculated based on your Rs 40,000 profit:

1. Determine the Holding Period:
Short-Term Capital Gains (STCG): If the shares were held for less than 12 months before selling, the profit is considered short-term.
Long-Term Capital Gains (LTCG): If the shares were held for more than 12 months, the profit is considered long-term.
2. Tax on Short-Term Capital Gains (STCG):
Tax Rate: STCG on the sale of shares is taxed at 20% plus applicable surcharge and cess.

Your Situation: If your Rs 40,000 profit is short-term, it will be taxed at 20%.

Example Calculation:

Tax on STCG = 20% of Rs 40,000 = Rs 8,000
Add surcharge and cess as applicable to arrive at the final tax payable.
3. Tax on Long-Term Capital Gains (LTCG):
Exemption Limit: The first Rs 1.25 lakh of LTCG in a financial year is tax-free.

New Rule (12.5% on gains above Rs 1.25 lakh): If your total LTCG exceeds Rs 1.25 lakh, the amount above Rs 1.25 lakh will be taxed at 12.5%.

Your Situation:

If your Rs 40,000 profit is long-term and your total LTCG for the year is within Rs 1.25 lakh, no tax will be due on this profit.
If your total LTCG exceeds Rs 1.25 lakh, then the amount above Rs 1.25 lakh will be taxed at 12.5%.
4. Filing Tax Returns:
Include the Gains: You need to declare these capital gains when filing your income tax return.
Pay the Tax: Ensure that you pay any applicable tax before filing your return to avoid penalties.
Final Insights:
Whether your Rs 40,000 profit is short-term or long-term, understanding the holding period and applying the correct tax rate is essential. If your gains fall under LTCG and your total gains for the year exceed Rs 1.25 lakh, be prepared to pay the 12.5% tax on the excess amount.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in