Do you know how your ESOPs will be taxed as per the current law?
Do you have to pay capital gains tax on shares that you sold after holding them for more than a year? Is sale of property exempt from short-term capital gains tax?
How much capital gains tax do you have to pay when you sell your house after three years? How do you save on tax by investing the proceeds from the sale of your house?
What should be the minimum timeframe within which you should sell a property so as to pay least tax?
In a chat with readers on May 15, Get Ahead tax expert Mahesh Padmanabhan answered these and many more queries related to saving tax and ESOPs.
For those of you who missed the chat, here is the transcript.
shetty asked, I am investing Rs 2,500 per month in SIP which is divided as Rs 1,500 in Reliance ELSS and Rs 1,000 in Franklin Templeton Equity Plus. Also we may be going for a home loan after 6 months so I have 2 questions for you regarding this....
1) Do you think I am on the right track as far as my investment and tax saving is concerned?
2) What is the right time to go for a home loan in the current year as the interest rates are on a high? Are there any chances of it going down?
Mahesh Padmanabhan answers, Investment in SIP is a good bet as a long-term investment option. If you are looking at using this money for funding your home acquisition then you would need to take extreme care as to the timing of liquidation of such investments (i.e. in case the markets are down at the point of sale, then you would lose your initial principal too).
Another six months might see lowering of home loan rates, with inflation rate and general interest rates coming down. Hence, in case you can wait for the said six months there is a possibility of you getting a better rate.
charu asked, Hi my annual income is Rs 3.36 lakhs and my husband's income is Rs 3.5 lakhs. How much and in what way we should invest?
Mahesh Padmanabhan answers, General investment avenues available are the following: Life insurance, PPF, NSC, ELSS mutual funds, infrastructure bonds, principal repayment of home loan, etc. These options are very general. In case you have engaged the services of a financial planner, then you should get your risk and need profile evaluated to understand the best possible investment avenue.
diba asked, Say I sell a share after one year of holding, do I need to show it in my tax return and pay tax on it. Please give me a detailed answer.
Mahesh Padmanabhan answers, In case you are selling shares after holding the same for a period of 12 months, then you would definitely need to disclose the same in the computation of income but as an exempt income. You would not be required to pay tax on such long-term capital gains
house owner asked, Purushottam says there is no capital gains on selling a residential property if that is sold after 3 years of ownership. Is it true?
Mahesh Padmanabhan answers, Capital gains tax is applicable on such assets that are included as capital assets for the purpose of IT Act. In case of residential property, capital gains tax is applicable on any gain made on transfer of such property. The categorisation of such an asset as long term or short term, and accordingly the rate applicable to such gains, would be different based on the length of holding the asset as owner.
Moreover, for certain long term capital gains there are exemptions available based on meeting certain conditions of reinvestment or parking the funds in designated accounts whereby the capital gains tax might become NIL.
rsk asked, Hi Mahesh, Could you clarify the recent rule on taxation of ESOPS ?
Mahesh Padmanabhan answers, Though the details are not yet available, here's how according to us the entire thing on ESOP taxation would work.
The fair market value, that is, the average rate on the date of vesting of ESOPs as reduced by any amount recovered from the employee would be the value of Fringe Benefit with the applicable tax rate being 33.99 per cent payable by the employer. However, the point of taxation of such FBT would be on the date of allotment of the shares under such ESOPs.
Moreover, the FB tax could be recovered by the employer from the employee. For the purpose of capital gains taxation, the cost of acquisition would be the value as computed above for determining the fringe benefits. This is purely our understanding as on date and might be subject to review once the detailed methodology comes out.
dfdfbala asked, Hi Mahesh, I am going to sell a residential property bought in August, 2005 ,in this month (May 2007). I believe this will attract Short-term capital gains tax. My tax consultant has advised that, if I invest the full/partial amount in another residential property, I can save fully on my tax liability. Please advise, if this is correct and which section allows this provision. Thank you.
Mahesh Padmanabhan answers, There are certain exemptions available even for short-term capital gains for specified assets or situations, but sale of residential property is not included under any scheme of exemption for short term assets.
SaveMyTax asked, I have taken a house for say Rs 20 lakhs 1 year back. If I sell my house now for Rs 40 lakhs then how much tax I need to pay. And if I purchase another house for Rs 40 lakhs do I need to pay any tax? Please be on point. Don't give generic answers.
Mahesh Padmanabhan answers, As the house is a short term asset, the tax implication would be as per your applicable tax rate. Hence, if you are in the highest slab of 30 per cent then the tax would be approximately Rs 20 lakhs * 33.99 per cent = Rs 6.67 lakhs
ganesh asked, My father purchased a flat in 1993 of which I am the second joint owner of the flat. After my father passed away in 1998 I made my mother as the first owner of the flat & now my mother want to sell the flat & all consideration should be in her favour. Will I still be the second co-owner if the flat?
Mahesh Padmanabhan answers, Based on the information provided by you, we understand that your father was the primary owner of the flat and as per succession plans your mother would be the next primary owner. What you need to ensure is that you are just a nominee in the said flat and not a co-owner. Under such circumstance, the capital gains tax would be leviable on your mother.
Uday asked, Hello, recently we sold our house. Where can we invest this money to save tax?
Mahesh Padmanabhan answers, In case you had held the asset for a period of more than 36 months, the re-investment could be made in either of the following assets viz, new residential asset, bonds issued by NHAI and or REC.
Msp asked, Yes Mahesh ..I'm there..I need to Login as Msp ....Can u please answer my question? Hi Mahesh! My question is regarding the ESOPS... Ex: I got my shares ( during Vesting Period) at 162. Now the value of the same is around 450. Now the tax calculation of 33.99 per cent will be on the difference amount (450-162)? Or the deduction logic is different? Please comment on this.
Mahesh Padmanabhan answers, Your logic seems to be correct provided that the same vests after the applicable date mentioned in the rules and FBT has been paid on such ESOPs by your employer.
Swapnil asked, Hi Mahesh, With the capital tax, is it wise to buy a property? What should be the minimum timeframe within which I should sell the property so as to pay least tax?
Mahesh Padmanabhan answers, In case you wish to pay the least tax (if not zero), you would need to hold the property for in excess of 36 months. In this case, you might need to pay around 20 per cent as long-term capital gains tax. In case you re-invest the same and in turn, hold the same for the required period then you could avail of the zero tax status.
Mahesh Padmanabhan says, Dear readers, we wish to thank all of you for posting your queries. Due to time constraints, we would need to close this session. We would definitely come back again with another chat session on certain specific topic. Thank you.