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Rediff.com  » Getahead » Selling your company shares? Pay tax

Selling your company shares? Pay tax

By RelaxWithTax
August 10, 2006 09:20 IST
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I have a query relating to Employee Stock Option Plans.

I have been given 10,000 shares by my company listed on the London Stock Exchange. I got them at zero cost during its Initial Public Offering in London. The IPO price was GBP 1.16.

I am now planning to sell the stocks. The stock price is less than the IPO price now. Is this a capital gain or a loss?

What is the tax that I should pay if I sell now?

- Siva Ramakrishna

When calculating the capital gain or loss, one has to consider the actual cost of acquisition, which is the amount you paid when you bought the shares or acquired them. In your case, this is zero. Consequently, the capital gain would be the value of sale consideration received by you. The entire sale amount will be taken into consideration.  

Secondly, you did not provide us with details of the date of allotment and the date of sale. This is absolutely relevant in deciding whether the asset is a long-term or short-term asset.

If you sell the shares after 12 months from the date of allotment, then it is long-term capital gains. If you sell it before, then it is short-term.

In case the asset is long term in nature, then the tax on the capital gain would be computed at either 10% of the gains or at 20% of capital gains based on the indexed cost of acquisition. Indexation is when inflation is taken into account when calculating capital gains.

In case the asset is short term in nature, then the tax rate applicable would be the applicable rate at which your total income is taxed with.

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Illustration: Dominic Xavier

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