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The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

Readers' Note: Please keep your questions short.

I work for a US-based firm which is a public limited company with its head office in India. I get all my salary in USD. I was recently covered under ESOP and the stocks were offered at discounted price to us. I have bought some shares from this scheme and have paid the cost in USD from USA directly to the company.
Can I show the money paid by me as my capital and then investments in ESOP in my Indian IT files. If yes, what are the required formalities and how it could be done? What proof is required to show that the money originated form outside India and a transaction actually occured?

— Sandeep Tibrewal

The taxability of income is determined by the residential status of an individual. You have not given your precise residential status nor given adequate data for us to determine your status.
Now assuming that you are eligible for the status of NRI, you are not liable for any taxation in India on the ESOP gained by you. The form for return of income in India does not provide for disclosing of one's wealth and hence the money paid by you for the shares need not get reflected. However, you may prepare and file your personal balance sheet if you are particular about disclosing the same.
The capital will get disclosed when you actually sell those shares and earn capital gains on the same. Again, if you sell the shares while maintaining the status of NRI, the capital gains is not taxable in India. Nevertheless, the same may disclosed in the return as Exempt Income in the Return Form.

Can an ordinarily resident Indian be eligible to hold dollar denominated stock options issued by an MNC? Is clearance under FERA and the IT Act required?

— Sailesh Gadia

The newly enacted FEMA, 1999, specifies that the RBI may by regulations, prohibit, restrict or regulate the transfer or issue of any foreign security by a person resident in India or by any branch, office or agency in India of a person resident outside India. Hence, subject to conditions laid down by RBI, a resident Indian may be eligible to be allotted $ denominated stock options. The permission for allotment is usually taken by the employer.

Taxability of income is related to the residential status. The taxability of stock option would be as under if you are a resident in India.
On allotment - Included in the income as part of salary.
On exercising the option - Included in the income as capital gains (if any).

I have been an NRI for more than two years and will soon be returning to India. If I sell my investments in US stocks and securities while in India, what will be the tax implications? Can I maintain a bank account in the US on returning to India? Do I have to inform the tax authorities in India about me returning to India?

— Vipin Kamra

NRI's who are returning to India after having stayed outside India for a minimum period of one year are allowed to retain their foreign assets after returning to India. The tax implication is dependent on the residential status of an individual. Resident Indian is taxed on his global income.
If there is capital gain on the sale of shares, then you are liable for tax @ 20 per cent on the capital gains. However, the interest earned by you, as a resident would be taxed in India. There exist double taxation avoidance treaties between India and other countries, in which case tax paid once in a country covered in the treaty is not taxed again in India.

Taxability of income is related to the residential status. The taxability of stock option would be as under if you are a resident in India.
On allotment - Included in the income as part of salary.
On exercising the option - Included in the income as capital gains (if any).
If the stock option is vested outside India while you are enjoying the status of NRI, then you will not attract the tax as mentioned on allotment.
Hence the two stages of taxation coupled with your residential status at each stage would decide the tax implication.
The declaration as to Residential status is a part of the Income Tax return.
We would not be in a position to advise you on the incidence of tax in the above circumstances in US.

Is RBI permission required for an NRI to buy shares in the secondary market even if the sale proceeds are not intended to be repatriated? The the RPI form a blanket permission to deal in secondary market or specific approvals for a company's share? Is the RBI permission to be obtained before the purchase?

— John Varghese

My brother is an NRI and does not have a bank account in India. He is interested in opening a broking and a bank account here. What are the specific approvals to be obtained from agencies like the RBI?
As he is interested in day trading and also in taking deliveries, he wants to appoint me as his agent authorised to act on his behalf to take a buy or sell decision and also operate his bank, broking and depository accounts. Can he give me a POA for that purpose?

— Eashwar

RBI permission is required for purchase of shares in secondary market. In order to avoid refernces for specific approvals for each transaction, the RBI grants general permission to the NRI's bank in India whom he should authorise to undertake the purchase and sale of shares on his behalf. Application for such permission should be made in the prescribed NRI form to The Controller
Reserve Bank of India
Exchange Control Department
Central Office (Foreign Investment Division)
Mumbai 400 023
The permission is to be obtained before purchase of investment.

The above mentioned Form is for investment on non-repatriable basis. If investment is required on reptriable basis, separate application is to be made in Form RPI to the above office of the RBI through the designated branch of the bank.
NRIs can appoint their friends or relatives to act as their agents with appropriate POA to purchase and sell shares and securities. A POA holder will not be treated as a Portfolio manager and no registration is required with SEBI.

Send in your questions to perfin@rediff.co.in

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