| Question And Answer | |
|---|---|
| Subject: | RSU – Salary (Perq.) and Capital Gains (Loss) |
| Category: | Income-Tax |
| Querist: | vswaminathan |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | perquisites, Sweet equity, vesting |
| Date: | March 5, 2023 |
Taxation of RSU (Sweat Equity) in the holding company granted ‘free of cost’ to employee of its Indian subsidiary –
Two stages / heads , –
- Salary – Perq. On Vesting, And;
- ‘Capital Gains ‘ On Sale of vested shares – In case , because of Recession ,the FMV taken for reckoning Perq. . Is less than the Price/FMV on Sale
QUERY (Tax Planning) : How best to make good for the resulting Tax Loss ?
On vesting the FMV of the share would be considered as perq. and the employee would have to pay tax on the same. On the subsequent sale of the share, if the Sales consideration is less than the FMV, there would be a Capital loss. The provisions relating to set off and carry forward of losses could be considered.
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” On vesting the FMV of the share would be considered as perq. and the employee would have to pay tax on the same….”
Does that mean/imply that as stipulated in the relevant enactment Sec 17.. /Explanation,-
Explanation 4. — Explanation thereto, –
(d) “fair market value” means the value determined in accordance with the method as may be prescribed;”…
has been accordingly prescribed !
If so,will you kindly furnish the Notification reference !
To ADD: Unable to locate Notification , if any.
The operating company(ies) may have adopted ‘ stock market quotation’ for TDS on RSU vested in employee for any explainable reasons. Even so, as independently viewed, that could be forcefully challenged on quite a few other sustainable grounds.More so, if in a given case, RSU is of holding company and it is the employee of its subsidiary / group company who is granted the benefit (as a part of salary package) for period / years of services rendered in a foreign country and salary income is therefore not taxable in India.In saying so, one has in mind the case of HDFC Dubai based employee and the itat order -though a adverse to employee hence discussed in an analytical Aticle/Critique published on the website of Taxguru.in.
ADMN/Advocate Any luck or badluck in locating the Notifcation ?
To reitetate /reinforce (as DONE elsewhere as well) :
ADMN. , Advocate
WHY NO SCOPE in LAW for TAXATION OF RSU (!):
1. RSU is not a ‘equity share’- (‘chose-in- action’) ;
2. ‘VESTING’ is not a ‘TRANSFER’ (for, that entails no, or is pursuant to any -transaction of ‘buy and sell’) ;
3. ALLOTMENT (free of cost) – Not “COST OF ACQUISITION” to employee – In any view, imputation of value or taking market value much less FMV as “COST OF ACQUISITION” is palpably misconceived ;
4. ‘SALE’ –
No conceivable “cost of acquisition”;
No conceivable ‘INDEXATION’ despite being permitted otherwise.
5. No Notification, as mandated, has, – so far as known/ ascertainable, been issued!
For all these and certain other valid reasons, in one’s own independent firm view founded on courage of conviction, the SC Judgment in Srinivasa’s case could be successfully invoked for contesting taxation of RSU (Perquisite or CG) !?
Of clinching relevance is the latest Post @ https://www.linkedin.com/feed/update/urn:li:activity:7039420300056301568?commentUrn=urn%3Ali%3Acomment%3A%28activity%3A7039420300056301568%2C7040136179530289152%29!