Let’s discuss about taxation of equity shares.
There are Different types of Equity shares dealt under these provision which are as follows
- Bonus Shares: The additional shares given to the existing shareholders.
In the case of Sale of Bonus Shares
Cost of Acquisition = NIL, as they are allotted to them for free.
- Right Shares: The shares which are firstly offered to the existing shareholders and in case if these shares are not subscribed by the existing shareholders then these shares are further offered to the public.
In the case of Sale of Right shares, consideration received shall be taxable.
In case of Purchaser of Right Offer (other than Existing shareholder):-
Cost of acquisition = Price paid to seller + Price paid to company.
- Sweat Equity Shares or Employee’s stock option plan: (ESOP) are the shares which are offered to employees at less than market price.
These shares are taxed in two stages:
- first when this option is exercised by the employee, then
Taxable Amount = (Fair Market Value – Exercise Price per share) X Number of shares allotted.
This amount shall be taxable as perquisite under head “Income from Salary”.
- In the Second stage, Amount shall be taxable under head “Capital Gain” which can be computed as:-
Taxable Amount = Sale Consideration – Fair Market Value of ESOP – Expenses incurred by employee.
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