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Mahesh

Mahesh Padmanabhan  |120 Answers  |Ask -

Tax Expert - Answered on May 05, 2023

Mahesh Padmanabhan has specialised in payroll, personal and corporate taxation for more than two and a half decades, enabling him to provide practical, realistic and correct advice to his clients.
He is a member of The Institute of Chartered Accountants of India and has a degree in cost accounting from the Institute of Cost Accountants of India.
He is also a qualified information systems auditor. ... more
Vijay Question by Vijay on Apr 30, 2023Translate
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What are the tax implications on the foreign company ESOP sell profits?

Ans: Hi Vijay

I am assuming that you are referring to sale of foreign shares held under ESOP grant held by an employee.

In case you have held the ESOP share for more than 24 months then it would be treated as Long Term asset. You could index the cost and any gain resulting from the calculation would be taxed at 20%

If the period of holding is shorter then the gain (if any) would be taxed at your slab rate.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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I would like to know regarding the long term capital gains tax for foreign shares.  Scenario: Employee is working in a MNC based out of US. He gets ESOP and in June 2017, it vests. He wants to sell it in 2020 (more than 24 months and hence long term capital gains). Say the total amount of incremental gain by selling the stocks that vested in June 2017 is 5 lakh INR.  My main question is: 1) Is the LTCG tax 10 per cent of the gains - i.e 10 per cent of 5 lakh? OR 2) Is the LTCG tax 20 per cent of the gains - i.e 20 per cent of 5 lakh? Any reference to the income tax laws (links) will be very helpful.
Ans: Foreign shares held by an individual for more than 24 months are treated as long-term capital assets and otherwise is treated as short-term capital assets. Capital gain from sale of long-term capital assets would be taxed at 20 per cent with the indexation on the purchase price or at 10 per cent flat without such indexation benefit.

Capital gains from sale of short-term capital assets would be added to income and taxed at the slab rates applicable for the individual.

Considering this as an ESOP, taxation is calculated at two stages. At the time of allotment of shares and on sale of shares.

The income is determined based on the difference of the fair market value (FMV) of shares on the date of allotment and the amount paid to acquire such shares. This income is treated as perquisite and taxed as part of salary income at the applicable slab rates.

In the second part, tax is applicable at the time of sale of shares wherein the income would be the difference between the sale proceeds and the cost of acquisition of shares (based on the FMV of the share).

Tax needs to be paid on this and tax payable is based on the tenure as explained above.

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I'm contemplating a career change in my late 30s, earning Rs 14 lakhs annually. How can I navigate this transition while ensuring financial stability and working towards long-term goals such as retirement?
Ans: Transitioning to a new career in your late 30s while maintaining financial stability and planning for long-term goals like retirement requires careful consideration and planning. Here are some steps you can take to navigate this transition effectively:

1. Assess Your Skills and Interests: Reflect on your skills, interests, and values to identify potential new career paths that align with your strengths and passions. Consider seeking career counseling or taking career assessment tests to explore different options.

2. Research Potential Careers: Conduct thorough research on the industries and roles you're interested in pursuing. Look into job market demand, salary potential, and growth opportunities to ensure your chosen career path is financially viable.

3. Skill Development and Education: Determine if you need to acquire new skills or education to transition into your desired field. This could involve enrolling in courses, obtaining certifications, or pursuing higher education such as a degree or specialised training programme.

4. Financial Planning: Evaluate your current financial situation and create a budget to understand your income, expenses, and savings. Factor in any potential changes in income or expenses associated with your career transition. Consider setting aside an emergency fund to cover unexpected expenses.

5. Debt Management: If you have any outstanding debts, develop a plan to manage and pay them off efficiently. Prioritise high-interest debts like credit card debt while maintaining minimum payments on other loans.

6. Retirement Planning: Review your retirement savings accounts like the EPF, and assess whether you're on track to meet your long-term retirement goals. Consider consulting a financial advisor to develop a personalised retirement plan based on your age, income, risk tolerance, and retirement objectives.

7. Health Insurance and Benefits: Evaluate the health insurance and other benefits offered by your new employer, if applicable. Ensure you understand the coverage provided and any associated costs. If transitioning to self-employment or freelancing, research options for obtaining health insurance coverage independently.

8. Networking and Building Connections: Network with professionals in your desired industry to gain insights, advice, and potential job opportunities. Attend industry events, join professional associations, and leverage online networking platforms like LinkedIn to expand your network.

9. Side Hustle or Freelancing: Consider starting a side hustle or freelancing in your desired field while maintaining your current job. This can provide additional income, valuable experience, and a smoother transition into your new career.

10. Evaluate Risks and Rewards: Assess the risks and rewards associated with your career change, including potential income fluctuations, job stability, and work-life balance. Be prepared to adapt and make adjustments as needed throughout the transition process.

By following these steps and carefully planning your career transition, you can navigate the change while maintaining financial stability and working towards your long-term goals, including retirement.
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