Will Esops attract fringe benefit tax?

My company is going to grant me employee stock options (Esops). Will this attract fringe benefit tax (FBT)? Also if a perk is taxable in my hands, is it still liable for FBT?

— Sanjay Chauhan

Yes, Esops will attract fringe benefit tax at the time you exercise your option of taking the stocks offered by your company. If a company gives shares to its employees free of cost or at a concessional rate under Esop, they are treated as a perquisite in the hands of the employee. FBT rate is 30% (plus the applicable surcharge and education cess) on the fringe benefits provided.

If a perk has been taxed in the hands of the employee as a perquisite, then it would not be taxed as a fringe benefit. The purpose of imposing FBT is to tax those benefits given to employees which have so far escaped being taxed as perquisites. Mainly these are expenses that lead to a collective benefit accruing to employees. For a detailed article on taxation of Esops, log on to tax.moneytoday.in

I plan to sell an ancestral property. We are four brothers and have agreed to equally divide the proceeds from the sale.What will be our tax liability? How can we reduce it?

— Keshav Desai

Since the property is owned by all four brothers, each brother shall be taxed separately on his share on the sale of property. The profit from the sale shall be treated as long-term capital gains because the property was acquired more than three years ago. The profits would be taxed at 10% flat rate or at 20% after indexation of cost.

You can reduce tax liability by using the profits to buy a new house within two years or to construct a new residential property within three years from the date of transfer of your ancestral property. In this case the entire amount of capital gains shall be exempt under Section 54 of the Income Tax Act.

Moreover, if you had bought a house within one year before selling the ancestral property, you can adjust the sale proceeds against the money used to buy the new house. You can also invest in capital gains bonds issued by the Rural Electrification Corporation or National Highways Authority of India.

I am sharing a rented house.Though the rent is Rs 4,000 a month, I am paying only Rs 1,000. Since this amount is less than Rs 3,000 and it is not mandatory to submit receipts, can I declare that I pay Rs 36,000 as rent and avail the tax benefits on HRA?

— Vishwas Prasanna

To avoid any inconvenience later on, it is advisable to declare the actual rent paid by you through your bank account. The least of the following three amounts is allowed as a deduction under Section 10 (13A) of the Income Tax Act: a) Actual house rent allowance (HRA) received during the year b) Actual rent paid minus 10% of salary c) 50% of salary (in case of metro cities) and 40% of the salary in other parts of India.

I have started a business and maintain my own books on cash basis. I find it difficult to maintain books on mercantile cash accounting allowed for income tax purposes?

— Nirmal Suri

Yes, cash accounting is allowed for small traders and in this case income is taxable on receipt basis irrespective of the time of accrual. Under this method, deduction of expenses is allowed only in the year of disbursement, irrespective of when the actual liability arose.

Tax is payable on the difference between the income and the expenditure during the financial year.

In the mercantile system of accounting, the net profit and loss is calculated after taking into account all the income and the expenditure relating to the period whether such income has been received or not and whether such expenditure has been incurred or not. It is mandatory for certain enterprises to maintain books on mercantile basis only if the annual turnover or gross receipts exceeds the threshold levels.

I have been filing my income tax return in Delhi for the past five years. Recently I took up a job in Hyderabad. Where should I file my return now?

— Ashok Reddy

Since you have joined a Hyderabad-based company and also shifted your residence there, you will be required to file your return of income at Hyderabad. You should write a letter to your current assessing officer about the change of your address and send a copy to your assessing officer in Delhi.

You should also write to the Income Tax Department for change of address in their PAN records. While filing your return in Hyderabad, it would be best if you enclose a copy of your previous year’s return to serve as a reference for your current assessing officer.

I have been an NRI for two years and will return to India soon. I was allotted company shares in February this year. I will sell them before returning to India. Will the money I get from selling these shares be taxable in India (I will not have NRI status for the year 2007-8)?

— Rajan Nair

Since you will be a resident for 2007-8, your global income is taxable in India, whether you transfer the foreign exchange income to India or not. For income tax purposes, it is immaterial when the shares are allotted to you. What matters is when the income is earned. The tax on short-term capital gains arising out of this transaction has to be paid.

If a part or the entire amount of your income is taxed in India as well as in another country or countries, there is no need to worry if there is a Double Taxation Avoidance Agreement between the two countries. Details of such tax-related agreements between India and other countries are available on www.incometaxindia.gov.in.

I am a school teacher and earn Rs 1.5 lakh a year. I also have some interest income from bank fixed deposits. How can I avoid the deduction of TDS on my fixed deposits?

— Reena Gupta

Banks deduct tax at source if the total interest income from fixed deposits exceeds Rs 10,000 a year. This limit is for all the fixed deposits in one bank branch, which means that in case a person holds more than one fixed deposit account in the same bank branch, tax will be deducted if the total interest payment exceeds Rs 10,000.

However, if the total interest income of the depositor exceeds this limit but his total income including the bank interest does not exceed the basic tax exemption limit (i.e. Rs 1.1 lakh for men, Rs 1.45 lakh for women and Rs 1.95 lakh for senior citizens), no TDS is deducted if the depositor submits Form 15H to the bank stating that his or her income is below the taxable limit and he is not liable to pay any tax under the Income Tax Act.