Receiving money as gift is not taxable

I would like to have clarity on taxation of restricted stock units (RSUs). I work for a MNC whose shares are listed on a Foreign Exchange. We were allotted 100 shares as RSU and on the vesting date only 70 shares were credited to the account because of tax deduction. This deduction was reflected in Form 16. For simplicity, the shares were vested at $10 a share. Subsequently, I sold the 70 shares in the international stock exchange in which they were listed at $12 net of charges. So, in effect, I earned a profit of $140 which has to be offered to tax.

However, since the proceeds were received in Indian rupees - if I were to calculate the capital gains in rupee based on the exchange rate on the date of the vesting and receipt of sale proceeds there is a capital loss as the rupee had depreciated against that currency. Please advise what would be the correct course of tax treatment. I am an Indian resident.

It is assumed that the actual allotment/transfer of shares under the RSUs, took place on the date of vesting of the RSUs and perquisite tax had been deducted at source by your employer (through snipping of shares) at the time of allotment, at fair market value (FMV) of the shares on the date of exercise/vesting (as certified by a Category 1 Merchant Banker in India) less exercise price, if any.

As per Section 49(2AA) of the Income-tax Act, 1961 (‘the Act'), cost of acquisition of such shares at the time of subsequent sale, shall be substituted by the FMV for a share considered for above perquisite valuation.

Accordingly, the capital gain/loss should be calculated as (Net sale value for a share less cost i.e. FMV for a share) multiplied by the number of shares sold.

As the sale of the shares has taken place outside India, the capital gain has accrued outside India (irrespective of receipt of sale proceeds in rupee) and should be calculated in the same foreign currency i.e. dollar, as per Rule 115 of the Income-tax Rules, 1962.

The capital gain/loss should be converted to rupee at the rate of exchange (SBI telegraphic transfer buying rate) prevailing on the last day of the month immediately preceding the month in which the shares are sold.

If shares are held for more than 12 months prior to sale, gain should be treated as ‘long term (LTCG)' else it should be treated as ‘short term (STCG)'. In case of LTCG, cost of acquisition may be indexed based on cost inflation indexes published by the Tax Department, to arrive at LTCG. LTCG is taxed at a flat rate of 20.6 per cent (including education cess) while STCG is taxed as per the normal slab rates applicable to the individual.

A few years back I had gifted money to my children. I have mentioned in my, as well as my children's return about the gift. Now that my son is working, if he gifts the money back to me, will it come under gift tax?

—Ramadas

As per the provisions of Section 56 of the Act, gift received by an individual from his relative (which includes son) is not taxable. Accordingly, money gifted back to you by your son, would not render any tax liability in your or your son's hands at the stage of receiving or giving gifts.

Any income earned by you from such sum of money would be taxable in your hands.

I am into share consultancy and fall in the 10 per cent tax bracket. Do I need to maintain accounts including Profit & Loss and Balance Sheet? What all accounts do I need to maintain?

—Kishore

As exact nature/details of the business/profession in which you are engaged is not available, we have discussed below the general provisions in law with respect to maintenance of books of accounts. You may judge your requirement to maintain the books based on the specific facts of your case. As per Section 44A(1) of the Act, any person in a specified profession (including technical consultancy) is required to maintain books of accounts specified under Rule 6F of the Income-tax Rules, 1962 (‘the Rules”).

The specified books/documents are Cash Book, Journal, Ledger, carbon copies of the bills/receipts issued (where they exceed Rs 25), original bills received, original receipts of expenditure incurred, signed payment vouchers (where such bills/receipts are not issued and the expenditure does not exceed Rs 50).

The books for the current FY should be kept at the principal place where the person is carrying on the profession. Further, the books should be maintained for seven years from the end of the relevant FY.

If however, gross receipts of such person do not exceed Rs 1,50,000 in any of the three preceding Financial Years (FYs)/not likely to exceed said limit in the relevant FY (where profession set up in said FY), the person is required to maintain only such books as may enable the Assessing Officer to compute his taxable income under the Act. No specified books have been prescribed. No specified books have been prescribed for a person carrying on business or non-specified profession.

(The author is Executive Director, Tax, KPMG.)

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