1. How can I claim tax benefit of DTAA treaty with Sweden (for 30% TDS on dividend) as after-tax income under certain clause for annual dividend reinvested by buying shares at market value He is going. ,
2. How will the sale proceeds for these shares be treated as all the stocks are now more than 24 months old?
3. I want to bring this in my ITR as filing hard perquisites as per Form-16 have been added to my salary and I will be able to calculate each of these contributions (as after tax) and perquisites for reconciliation of shares. I am paying tax.
-Name withheld on request
At the outset, please note that we have not reviewed the actual stock plan documents and transactions, so our comments below may be construed as general in nature based on limited facts and assumptions made.
It is assumed that you qualify as a resident and ordinarily resident in India (‘ROR’) in accordance with the provisions of section 5 of the Income Tax Act, 1961 (‘the Act’) and shall always be physically accessible to all in India been working. First and future financial years (including the financial year in which dividends are received and shares are sold).
You work with an Indian company, which is a subsidiary of a company headquartered in Sweden (‘S Company’) listed on the NASDAQ. As per Equity Linked Incentive Plan (‘ELIP’) of Ace Company, you have been allotted/purchased shares of Ace Company under ELIP over the years.
1) We understand that the applicable Indian Salary (Perquisite) taxes at your hands on the purchase/allotment of shares as per ELIP shall be payable to the relevant Financial Years (Financial Years) and appropriate disclosures in respect of these foreign shares to you for the relevant financial year. Foreign Assets Schedule and AL Schedule of ITR Form (if applicable).
2) As you qualify as a ROR in India, in the financial year in which dividend income accrues/is received from such shares held outside India, the same is also taxable as income from other sources in India Will be
We understand that 30% tax has been deducted and paid in Sweden on dividends received by you from such shares purchased/allotted. Since the Government of India has a Double Taxation Avoidance Agreement with Sweden (‘DTAA’), the provisions of Section 90 of the Act read with Rule 128 of the Income Tax Rules (‘IT Rules’) may be invoked. The effect of such double taxation, if more beneficial to you, through the application of DTAA provisions.
In accordance with Article 24 of the DTAA, if you qualify as a resident of India under the DTAA and dividends have been taxed in Sweden in accordance with the DTAA provisions, a credit of proportionate taxes paid in Sweden on dividend income (Foreign Tax Credit or FTC) can be traced against tax payable in India on dividend income. In order to conclusively comment on the amount of the FTC claim, it will be important to review your Swedish domestic tax residence/residence under the DTAA, the taxability basis of dividends in Sweden, etc.
The tax on such dividend income (net of the above FTC claim) must be paid by you in India through the advance tax/self-assessment tax route. In addition, dividend income should be properly disclosed in the relevant schedule of ITR form for the relevant financial year, including the foreign asset schedule. The FTC claim will also have to be disclosed in the relevant schedule of the ITR form. In addition, a prescribed Form 67 has to be filed online within the due date and prior to filing the original tax return (along with supporting documents) to claim FTC in the tax return.
3) In accordance with the provisions of the Act, in respect of taxability of sale proceeds from shares, any gain or gain (including loss, if any) arising from the transfer of capital asset shall be charged to income-tax under the head “Capital”. “Gain” and will be deemed to be income of the financial year in which such transfer took place. As you qualify as a RoR in India, the capital gain in your hands will be taxable in India.
Since the shares of S Company are not listed in India, shares held for less than 24 months from the date of allotment shall be classified as short-term capital asset and any gain/loss shall be deemed to be short-term capital gain/loss (‘ STCG’). Otherwise, it will be treated as a long-term capital asset and any gain/loss will be a long-term capital gain/loss (‘LTCG’).
Further, since the shares have been acquired by you under ELIP and the perquisite tax payable at the time of allotment has been paid, the cost of acquisition shall be substituted by the fair market value for the purpose of computing STCG/LTCG on transfer. Number of shares applied for, to arrive at the taxable perquisite value in the previous financial year.
STCG and LTCG will be taxable as follows:
STCG: As per the provisions of Schedule I of the Finance Act, STCG from sale of shares shall be taxable at the marginal tax rates applicable to the taxpayer in India.
– LTCG: As per section 112 of the Act, LTCG @ 20% (after adjustment for cost inflation index) from sale of shares will be taxable – plus applicable cess and surcharge
In case of any double taxation on profit arising from the sale of such shares, mitigation of double taxation can be ascertained as per the provisions of section 90/paragraph 13 (capital gains) of the Act and section 24 of the DTAA. ,
Tax on such capital gains (net of DTAA relief) should be paid by you in India through advance tax/self-assessment tax route. Further, the capital gains should be properly disclosed in the relevant schedule of ITR form for the relevant financial year including foreign asset schedule. Any DTAA relief will also have to be disclosed in the relevant schedule of the ITR form.
Parijad Sirwala, Partner and Head, KPMG, Global Mobility Services, Tax in India, answered the questions.
(Write to mintmoney@livemint.com to get your personal finance questions answered by the experts.)
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