Gain dacquisition stock options
When the employee or manager exercises the option and pays the price, he or she becomes a shareholder and thus realizes an acquisition gain difference between the value of the shares on the day the option is exercised and the price paid.
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The taxation of this acquisition gain is deferred until the year the shares are sold. When selling the shares, the employee then realises a gain capital gain or a loss capital loss on the sale difference between the sale price of the shares and their value on the exercise date.
This capital gain is taxed for the year in which the sale of the shares takes place. If there is a capital loss on disposal, it will be deducted from the exercise gain for the year and will reduce its taxable base.
What Happens to My Stock Options During a Merger and Acquisition (M&A)?
This employee profit-sharing tool is therefore attractive compared with traditional remuneration. Click to open in a new tab.
I am an Indian taxpayer and a software employee and have company stocks listed in the US stock market. The perquisite tax has already been deducted by my employer in India from my salary for these stocks.
What Happens to My Stock Options During a Merger and Acquisition (M&A)?
I have held these for more than two years now. Will the capital gains arising from their sale be termed as long-term capital gains LTCG? Do I get complete exemption if I put all the money received from the sale of these stocks into buying a residential flat in India?
I already have a flat that I bought 10 years ago.
It is being assumed that the shares have been allotted to you after 1 April , and that you are a resident and ordinarily resident in India for tax purposes in the financial year of sale. As the equity shares were held by you for more than 24 months from the date of allotment, the gains arising out of the sale would be LTCG in your hands. LTCG on sale of shares received under employee stock options or Esops is calculated as the difference between the net sale proceeds sale proceeds less incidental expenses and the indexed cost of acquisition ICOA.
Part 3: Exercising stock options and taxes
CII for FY21 is yet to be notified. A roll-over exemption can be sought by you against this LTCG under Section 54F of the Income-tax Act by investing the net sale consideration from the sale of shares towards purchasing or constructing a residential house property in India, subject to the prescribed conditions and timelines.
The fact that you own another residential house property in India on the date of sale of the shares shall not disentitle you to claim the roll-over exemption under Section 54F. Queries and views at mintmoney livemint. Click here to read the Mint ePaper Mint is now on Telegram.