While the Indian unit of Google Inc, now rebranded as Alphabet may be posting 35% increase in yearly revenue, the transition could mean bad news for it’s employees holding vested Employee Stock Options (ESOPs). For
employees who are resident in India, this exchange of Google’s shares
and employee stock options for Alphabet’s shares and stock options and
attract capital gains. “As per Indian Tax laws this transaction involves
capital gain which is taxable in India,” says Archit Gupta, founder and
CEO, Cleartax.in.
The tax will be payable even though the
ESOPs haven’t been sold. Alphabet is holding shares of Google and now
that company has been restructured, the shares held by employees will
deemed to have been transferred, resulting capital gains tax. ” It is a
buy and sell in the company books and therefore there is a tax
incidence,” says Gupta.
When held for a long-term, that is, more
than three years, such gains are taxed at 20% with indexation. “If you
were holding these stocks for less than a year, the capital gains will
be taxed at the slab rate,” says Gupta. In case of stocks too the tax
implications will be same, only the calculations shall be slightly
different.
“The restructuring and the tax impact was unplanned and has led to an
additional Rs 15,000 tax outgo for the year,” said Google India
employee. “Several Google employees have reached out to us seeking
information about tax implications of restructuring of Google entities
and how it impacts them,” says Gupta.
When held for a long-term, that is, more
than three years, such gains are taxed at 20% with indexation. “If you
were holding these stocks for less than a year, the capital gains will
be taxed at the slab rate,” says Gupta. In case of stocks too the tax
implications will be same, only the calculations shall be slightly
different.
“The restructuring and the tax impact was unplanned and has led to an
additional Rs 15,000 tax outgo for the year,” said Google India
employee. “Several Google employees have reached out to us seeking
information about tax implications of restructuring of Google entities
and how it impacts them,” says Gupta.On this additional income of capital gains advance tax is applicable and the third quarter installment is due on 15th December. All assessees including salaried employees and self-employed professionals are required to pay advance tax if their tax liability in a financial year is Rs 10,000 or more.
A penalty is charged if you pay less
than 90% of your assessed quarterly advance tax liability. By 15th
December non-corporate individuals should pay up to 60% of advance tax
liability. 100% has to be paid by 15th March every year. “Under section
234B and 234C, non-payment of advance tax results in levy of 1% simple
interest as penalty on number of months of delay,” says Gupta.
Additionally,employees who are resident in India during the year of
transfer of shares, have to report their global income, in this case the
capital gains, and foreign assets, that is, their share holdings in
Alphabet in their tax returns for financial year 2015-16.