T. Banusekar

My brother has been allotted shares under an employee stock option scheme. If he sells these shares after holding them for more than one year, will he be liable to capital gains tax? Muralidhar

The first issue that needs to be addressed is whether the employee stock option received by your brother would have been taxable in his hands when the allotment was made. It would have been taxable as a perquisite if the allotment were not in accordance with the guidelines issued by the Centre. In that case the income would have been taxable as a perquisite under the head `salaries'. If it had been in accordance with the guidelines issued by the Government, it would not have been taxable as salary at the time of allotment.

The taxability at the time of sale will depend on whether the shares were listed and sold through a recognised stock exchange or sold otherwise than through a recognised stock exchange. If sold through a recognised stock exchange, the securities transaction tax would have been levied at the time of sale. Since the share is held for more than 12 months, the gain would be long-term and exempt under Section 10(38). If the sale had not been through a recognised stock exchange, the gain would be taxable. The cost of acquisition will be taken as the price at which the shares were allotted to your brother if no tax was suffered at the time of allotment. If it was taxable at the time of allotment to your brother, the cost of acquisition would be the market price as on the date of allotment.

I am a non-resident according to the Income-Tax Act. However, my wife is a resident . She purchased a house from out of her own sources. She earns Rs 2 lakh per annum from that property. She pays the school fees for our two children and also the LIC premium on a policy taken by her to insure her life and that of our son's. Her net income after deductions under Section 80C in respect of the above is less than Rs 1,35,000 a year. Does she have to file her income-tax returns? She also has assets in her name to the tune of about Rs 1.50 crore which were acquired out of my income. How should the income from these properties be reflected in the tax returns? K. R. C. Rao

Your wife may not have to file a return by reason of her income exceeding the maximum amount not chargeable to tax.

You may note that a woman gets a basic exemption of Rs 1,35,000. Insofar as the income earned out of assets acquired with your funds in your wife's name is concerned, the income will have to be clubbed in your hands as per Section 64(1).

I received a compensation of Rs 9 lakh and interest of Rs 3,20,000 on this compensation. I received this compensation on the death of my son in an accident and was paid by the insurance company on a claim made by us before the Motor Accident Claim Tribunal. Are the compensation and the interest taxable? Ram Narayan

The compensation received by you will be a capital receipt and will not be chargeable to tax. The interest will, however, be taxable under the head `income from other sources'.

What will be taken as the cost of acquisition in case of a property that is inherited? Will the basic exemption be available to a non-resident? Sanjiv Sathe

Where a property is inherited, the cost of acquisition will have to be determined in accordance with Section 49 of the Act.

This Section provides that the cost of acquisition will be the cost to the previous owner. The issue of whether basic exemption will be available to a non-resident can only be answered after knowing the nature of income earned by the non-resident and also whether he chooses to opt for Chapter XII-A of the Act or for the other provisions of the Act.

However, it appears that Chapter XII-A is in the present context normally less beneficial to a non-resident assessee which would mean that non-resident assessees would invariably prefer to be governed by the other provisions of the Act, in which case the basic exemption would be available to a non-resident assessee.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002

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