As living costs go up and up, it becomes even more important to invest our money, no matter what the amount is, and when we do, we want to make sure that we produce higher returns while experiencing little risk. It is possible, but if you want very high returns, you will have to take greater risk. If for instance, you are in retirement age, or putting away money for your kid’s college education, then your endurance for risk does drop a great deal. You can’t afford to take any chances in case the market drops.

So, this post will take you through the best low risk investments that will yield you a higher return.

• High Interest Savings

If you want a risk free way to get some interest on your money, you should look into opening a high yield savings account, because this way you’ll be able to earn some amount of interest just for putting your money in a deposit. This also doesn’t require any other maintenance. Many high yield savings accounts offer economical interest rates with no fees, so find a bank with an excellent reputation with effortlessly accessible online managing of your account.

• Annuities

Many investors don’t like the idea of annuities because some unreliable financial advisors suggested and pushed them to people who didn’t suit that in terms of their financial objectives. But it is important to remember that annuities are a fine choice for various investors who wish to steady their portfolio over a longer length of time.

When it comes to annuities, it is important to keep in mind any risks and discuss everything with your financial advisor. Understand the annuity you are signing off on before you do, because annuities are usually complex with many facets in the contract.

When you buy an annuity, you give a lump sum and receive a assured rate of return. There are different kinds of annuities, but regardless, buying one is similar to making any deal with an insurance company. You can either get a fixed or variable return back, or sometimes it will depend entirely on the performance of the stock market and gives you drawback protection.

Your risk will always be lower if you get a guaranteed return back. This way your annuity is backed up by the insurance company that holds it, so it is secure despite the product itself being complex.

• Money Market Funds

These funds are mutual funds that are best suited for those who don’t want to any of the principal on their investment. This fund also tries to make keeping your cash in the fund rewarding and useful and pays out a slight bit of interest. The aim is to keep the net asset value at $1 per share. Sometimes, the net asset value (NAV) can drop below $1 but it doesn’t happen often. These funds have a strong background in protecting your cash value.

• Municipal Bonds

Whenever a governmental body needs to borrow money, they do so in the form of a municipal bond. These bonds are issued by the government and they are an excellent investment for those who wish to evade taxes. Some municipalities also excuse income tax on these bonds, but you should confirm this with your advisor.

These bonds are so secure because they circumvent income taxes and as a result, have a higher return compared to an investment of the same risk level that are taxed, and also there is a low chance of the borrower defaulting. Governments can always elevate taxes or pay off old debt by issuing new debt, which is why municipal bonds are protected investments.

• Preferred Stocks

Preferred stocks are stocks issued by companies, and they have both an equity and debt stock portion. Preferred stocks have less risk than common stocks and are not traded as heavily as common stocks. By purchasing preferred stocks, you can own company shares while still receiving dividend payments.

Investing is something that will keep evolving throughout your life. It’s good to start as early as you can, and even if you haven’t started, it doesn’t matter how old you are because you can always start from today. In order to be a successful investor, you first need to make sure your spending habits are firm and fixed so that you can continuously contribute to your investments.

Once you have saved up a decent amount of money to begin, you can start deciding how you want to invest that money. You need to get clear on what your needs are and how much risk you’re willing to take. You can divide this question into two parts: do you want money for growth or for income. That way you can decide if you want to put money into investments that will grow or that will produce income. This will depend on your goals. If you are investing for retirement then you don’t need to produce an income right now. If you are investing to go on a vacation, then you do.

You  will always have to tolerate some risk when you invest, but you can understand how much risk to tolerate depending on how you tolerate price changes in your investments and how that will balance with your rate of return goal. If you are planning to keep a specific investment for a long period of time, you can tolerate a higher level of risk because any losses can be made up, but if you want to save money for a car then you will not be able to sustain as much risk and need more liquidity on your investment.

Investment decisions are personal, but there are some strategies everyone can follow.

Always make sure you have a cash reserve in any CD (certificate of deposit) or savings account so you are always safe in case of emergencies (liquidity). If you can keep a long investment, then you can also have a part of your portfolio in stocks so your savings don’t become low in value. Also try to visit a financial advisor at least yearly so you can review your investments and keep up to date on any issues.

Also always be well-informed on the taxable status of your investment because you need that information when you are putting together or going through a particular investment approach. A tax advisor can address any questions you have. Your investing decisions will be based on where you are in life, and what life stage you are in. If you are in your 40s, investing for retirement will be important to you. If you have only just gotten your first proper job, then you will need to start a savings account and let that put up a cash store. If you get a higher salary, you can increase your cash store. When you get married, if your spouse also works, then you need to establish new investments after combining incomes. If you just had a kid, your focus will be on growing life insurance and opening a college fund. When you reach your 50s or retirement age, you will want to augment retirement savings contributions. When you finally retire, you should review your income after retirement and decide on investments that will afford returns and allow for increase in assets to fund your future.

There is a notion that you need a lot of money to invest in the stock market. I also used to think the same way and thought I had to save up a decent amount of money before I began. And many others are under this false impression as well. There is this belief that only those who are wealthy can earn money through the stock market. However, that is not true. You do not have to be a skilled investor and nor do you need a ton of money to begin. Even beginner investors can do well regardless of limiting funds.

The main point to remember is that you need to cultivate good habits and use helpful resources, that way you will have self-assurance when you begin, which is imperative. This post will teach you how you can invest with modest money.

Aim to have around 25,000-35,000 rupees to begin investing. You save this amount up by keeping a jar aside and putting some money or extra change in there whenever possible. You’d be surprised at how quickly the money can start adding up. You can also use an online money market account to automate your savings.

A great way to get assistance is through robo-advisors. A robo-advsor is a digital platform that helps you invest money based on precise goals. This is also another way to mechanize your investing. This removes emotion from the process, and makes sure your investments are doing what they should be doing. The plus point of using robo-advisors is there is no bare minimum balance constraint and they are cheap.

Thanks to the fintech space (financial technology), it is a lot easier to invest in the stock market without that much money. Another excellent option is using a micro-investing app, to invest little amounts in index funds or stocks.

Mutual funds are another great way to invest with less money, especially if you are just starting to invest. Mutual funds are a group along with stocks and bonds, and are a great option for beginners who want to inactively invest.

Mutual funds don’t behave like stocks, and only trade once per day after the stock market closes. Also mutual funds are different from stocks because they have a minimum initial investment. In India, the minimum lump sum investment amount is Rs. 100 for some schemes. This is great because you can automate your investing and begin with little money.

It is important to not allow having less money dissuade you from investing. When you have less money it can be easy to postpone investing, and that does make sense, but it also ignores the most important aspect of investing, which is time. Time is required to make your money grow, for a best possible future, due to a concept called compound interest.

The graph below demonstrates this perfectly. Source: Business Insider

You can see that you actually have less money to save as it has more time to grow, if you start early. This doesn’t make much sense, but it does demonstrate the concept of time in investing. Don’t fall into the trap of thinking that the money put into the stock market each month won’t do anything. This will only keep you back from growing your wealth. You may not feel an urge to start saving for retirement now, but here many be many other goals that will urge you to invest such as going on a nice vacation, or buying a house.

Regardless of the reason, the common factor in meeting any goal is time. Find ways to save up money, and reduce your spending so you can start investing. You can start with less. It doesn’t really matter how much you begin with but you should be patient and confident that the money will grow.

Introduction

In today’s economy, for large Corporates/ start-ups, to achieve a certain milestone and retain the position in the market has been challenging.  One of the critical aspects of success of any organization is the talent pool of that organization.  In economy that is fast emerging and developing, every Corporate is looking at hiring the best talent pool and retaining its existing trained employees.  In the booming economy in terms of start-ups, e-commerce and with ample of other opportunities in the market, has resulted in higher attrition.  It has become utmost important for every organization to provide incentives, to keep their talent pool intact and motivated to achieve higher success milestone.  

One such innovative incentive devised is the concept of Phantom shares or Shadow shares. 

Concept of Phantom shares

“Phantom shares” or “Shadow shares” can be described as a type of employee benefit plan whereby employees of an Organization get various benefits of stock ownership without actually having real ownership of Stock (i.e. stake in organization in terms of voting rights, etc.), in exchange for their services.

Features of Phantom stock option

Following are features of Phantom Stock option:

1. It is a performance based incentive
2. It is conditional incentive – it is paid after a specific period of time or upon fulfillment of specific criteria
3. The underlying entitlement for an employee at the time of exercise of Phantom Stock Options is a cash payment unlike Stock Plans which entitle an employee to equity stake in the company.

Difference between Employee Stock Option Plan (ESOP) and Phantom Shares

Employee Stock Option Plan (ESOP) grants employees the right to purchase actual company shares at a predetermined price, offering ownership and potential profit. In contrast, Phantom Shares provide employees with a cash bonus tied to the company's stock value, simulating stock ownership without actual equity.
ESOPs involve real stock ownership, with voting rights and dividends, while Phantom Shares offer only financial rewards, making ESOPs more tangible but complex, while Phantom Shares are simpler but lack real ownership benefits. Both aim to incentivize employees, but ESOPs involve actual stock, while Phantom Shares use cash equivalents.

Tax Implications

Employee – At the time of exercise of phantom shares, employee receives income in the form of cash entitlement.  The income is taxed as under the head Salary as perquisites. 

Company – No tax implications in the hands of the company.           

The Income Tax Act of 1961 in India provides several provisions to offer tax benefits to individuals on the sale of their residential properties. Among these provisions, Sections 54 and 54F stand out as significant means to save on capital gains tax. However, these two sections cater to different situations and have distinct criteria for eligibility. In this blog, we will delve into the differences between Section 54 and Section 54F and understand how they can help taxpayers reduce their tax liability.

Section 54: Exemption on Sale of Residential Property

Section 54 of the Income Tax Act, 1961, primarily deals with exemptions related to the sale of a residential property. To avail of this exemption, you must fulfill the following criteria:

1. Nature of Property: The property sold must be a residential property. This means it should be used for residential purposes.

2. Investment in a New Residential Property: The taxpayer must invest the capital gains from the sale of the residential property in a new residential property within a specified time frame. This time frame is as follows:

   • For purchasing a new property: Within one year before or two years after the sale.
   • For constructing a new property: Within three years from the date of sale.

3. Amount of Exemption: The exemption is provided based on the investment made in the new property. If the entire sale amount is invested, the entire capital gains are exempted. However, if only a portion is invested, the exemption is calculated proportionately.

4. No Sale of New Property: To retain the exemption, the new property cannot be sold within three years from the date of its purchase or construction.

5. Capital Gains Account Scheme: If the taxpayer is unable to invest the capital gains before the due date of filing the income tax return, they can deposit the amount in a Capital Gains Account Scheme with a designated bank.

6. Ownership: The taxpayer must hold the new property for at least three years from the date of its purchase or construction.

Section 54F: Exemption on Sale of Any Asset

Section 54F, on the other hand, deals with exemptions related to the sale of any asset other than a residential property. This section aims to provide relief to individuals who invest their capital gains in a residential property. Here are the key points to note:

1. Nature of Asset: Unlike Section 54, which deals specifically with residential property, Section 54F applies to the sale of any asset, such as land, commercial property, or even gold.

2. Investment in a New Residential Property: Similar to Section 54, the taxpayer must invest the capital gains in a new residential property to claim the exemption. The same time frame for investment (one year before or two years after the sale, or three years for construction) applies here.

3. Amount of Exemption: The exemption is calculated based on the proportion of the investment made in the new residential property to the total sale consideration. If the entire sale amount is invested, the entire capital gains are exempted.

4. No Ownership Requirement for the Old Property: Unlike Section 54, there is no requirement to hold the old property for a specific period.

5. Ownership of New Property: To claim the exemption, the taxpayer must hold the new residential property for a minimum period of three years from the date of its purchase or construction.

6. One Residential Property Clause: It's essential to note that as per Section 54F, the taxpayer should not own more than one residential property, excluding the one in which the capital gains are invested. This condition does not apply to Section 54.

Conclusion

In summary, both Section 54 and Section 54F of the Income Tax Act, 1961, provide exemptions on capital gains tax related to the sale of property. However, they cater to different scenarios. Section 54 is applicable when you sell a residential property and want to reinvest in another residential property. On the other hand, Section 54F applies when you sell any asset (not just residential property) and wish to invest in a residential property. Understanding the differences between these sections is crucial for taxpayers to make informed decisions and optimize their tax liabilities. Consulting with a tax expert is always advisable to ensure compliance with the Income Tax Act and maximize the benefits available under these sections.

Tie breaker will come into picture when both parties tally with each other in all common scenarios. So, there is a need for additional conditions/ rules which either of the party should satisfy or covered to make them unique among the both.

The recent ICC world cup finals were tied as both England and New Zealand scored same runs then they tried the super over as they are still on equal stage then considered the maximum 4’s and 6’s in the match. Same is the case of recent Wimbledon when the played 5 sets are tied, they played the 6^th set to decide.

In a similar fashion when a person is considered as Resident by more than one contracting state for a particular tax year under the respective tax laws so the tax liability will be determined based on the accepted Double tax avoidance agreements (DTAA’s) entered between the countries , the same arises due to the globalization where persons are working across the globe physically and virtually too.

Article 4 of the DTAA’s generally deal with the Residence, tie breaker rules etc which helps the revenue officials of the contracting states to determine the Residential status of the person. Tie Breaker test is important because once you tie break to India you will be considered as Resident and all the global Income is taxable in India.

Let’s discuss about the same –

Permanent Home– Home should be made available to the person irrespective of his stay in that place.  A person who is resident of more than one state will be considered as resident only where he is having home made available to him. Home need not be of his own can even be of temporary but should be made available to him all the time. So if they have home made available to him at one place out of the two places where he is resident then they will tie break to the country where the permanent home is made available. This shows the center of personal and economic relationship closer to that country. In the absence of the same we will be required to move to next condition to determine the residential status.

Habitual Abode- Centre of Vital interest   – By name its clear based on his habitual residence out of the two countries where he is resident that country they will be considered as resident. Habitual abode means related to where his family stays, persons dependent on him and their place of stay, majority of economic activities of him etc needs to be analyzed in detail.So, their past history will be considered to determine the same. In the absence of clarity over the same then will move to next test to make him tie break to one country.

Nationality – When the Permanent home test, habitual abode test fails then we need to check the nationality to which country he belongs. Based on that he will tie break to one country. Even at that stage if the same is not decided then need to move to last test.

Mutual Agreement Procedure (MAP) - If we are unable to decide a residential status based on the above criteria then through MAP both the contracting states by their respective designated authorities will discuss and decide as per the procedure laid out between the countries to determine the residential status of the person for that year.

At the end Government’s need money from the taxpayers for the income earned by them in the country where the source of the income has arisen. In this process due the complications, tax structuring, avoidance, evasion etc made the Governments more meticulous in determining the tax liability.

PS: The above article is prepared for the educational purposes and you would be required to contact your tax advisor before acting upon the same. We would not be held liable if you rely upon the same without consulting the tax advisor before implementing the same in your case

Concept of presumptive taxation provides small businesses and professionals, a simplified taxation mechanism, wherein the tax payers are exempted to maintain books of accounts and pay taxes on the gross receipt basis.  This taxation mechanism was brought about to facilitate the ease of doing business in India.

In the year 2016, specific provision was introduced to provide relief to professionals.  Section 44ADA of the Income-tax Act, 1961 applies to individuals, Hindu Undivided Family (HUF) and Partnership firms carrying out following professionals whose total gross receipt does not exceed INR 5 million:

• Interior decorations
  
• Technical consulting
  
• Engineering
  
• Accounting
  
• Legal
  
• Medical
  
• Architectur
  
• Other professionals, as mentioned below:

• Movie artists includes a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers

• Authorized representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy

• Any other notified professionals

The eligible tax payer need not maintain their books of accounts and would not be subjected to tax audit as required under the Income-tax provisions.

Tax Mechanism:

Under Section 44ADA, income for tax purposes would be higher of the following:

50% of the total receipts from the profession

Income offered by the tax payer from the profession

A person can declare income at lower rate (i.e. less than 50%), however, if he does so, and his income exceeds the maximum amount which is not chargeable to tax, then he is required to maintain the books of account as per the provisions of sections 44AA and has to get his accounts audited as per sections 44AB.

Tax payers opting for the said scheme, would have to pay advance tax by March 15 of the previous year.  In case advance tax is not remitted within the said timeline, then the tax payer shall be liable to pay interest under section 234C of Income-tax Act.

Note: Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

CBDT has issued business codes for income tax return forms from A.Y. 2019-20. It is of utmost importance to ensure correct business sector along with correct business code has been selected while filing the return of income. List of Business codes for various  profession has been mentioned below:-

In the quest of alternate source of income, individuals tend to enter into derivative markets.  The most favorable option is futures and options.  It becomes crucial to understand the income-tax laws pertaining to income earned from trading in futures and options. 

Gains or losses from trading in futures and options are taxed under the head income from business and profession and it is important to declare the income in the tax returns as non-speculative business income.  The tax payer may claim all eligible business expenses while filing the tax returns.  ITR 3 would have to be filed.

Tax Audit under section 44AD of the income-tax

Tax audit under the income tax act, 1961 would be applicable if the turnover exceeds INR 2 crore or tax payer has incurred losses.  In this context, it becomes important to understand the definition of turnover.  Turnover for F&O is as stated below:

• Turnover of Futures = Absolute Profit
• Turnover of Options = Absolute Profit + Premium on Sale of Options

Absolute profit is aggregate of profits and losses.  For example, if Mr. A earns a profit of INR 25,000 on August 20 and incurs a loss on INR 15,000 on August 25, the turnover would be INR 25,000+15000= INR 40,000. 

On the applicability of tax audit, the tax payer is required to prepare financial statements, prepare and file tax audit report in form 3CD.   The tax payer can carry forward and set off losses against future profits of both speculative and non-speculative business for a period of 8 years, if tax audit under section 44AD is conducted. 

Financial advice is everywhere. But despite that, many people struggle to manage their finances. Many people assume that obtaining more money will solve their problems, and while that may hold true for some, most of us can agree that we do have adequate money to support our daily needs such as food, water, and a roof over our head. We are financially okay, but our society is based on consumption, and increasing that expenditure, and as a result, we all buy into the idea that we need more money.

If that’s the case, the approach to becoming financially free requires a much bolder approach. One that gives us different answers to the questions we keep asking.

Purchase only what is needed, not what you want. You need to identify what is a need and what is just a want. For example, if you get a bank loan for a home for a certain amount of money, search only for homes that sell for that amount or less. Realize the concept of minimalism. Decide what you need only on the merit of necessity rather than prospect, or on what you can possibly attain.

Don’t have car payments. This is a big one. Try to always pay in cash when you buy a new car. Try to avoid having car payments. Choose one that you can afford with whatever cash you have in the bank. Sometimes it is okay to not own a new car and get a pre-owned one instead, because it’s worth it if you can avoid any later stress related to car purchases.

In households where more than one person is earning an income, try to save the lesser income and live solely on the larger income. This way, you avoid lifestyle creep. Lifestyle creep happens when one’s income increases, and purchases that were once luxuries become necessities.

Avoid drinking alcohol. This may seem very countercultural, but it is very financially helpful. Those who don’t consume alcohol for whatever reason, whether it be cultural or religious, or personal, benefit greatly. People spend a huge amount of money on alcohol each year. This is a big expense for many families and if it is removed, discretionary income will increase greatly.

Try not to retire. There are some people well into their 80s and 90s who still work full time because they genuinely enjoy contributing to society. Their view of work is different from others which is why they never want to retire. Yes, some kinds of work are difficult to undertake in old age, but being open minded about work even after retirement age will certainly impact all financial decision making.

Studies show that we end up spending more when we use a credit card as opposed to when we pay with cash. If you are trying to follow a budget, pay with cash as much as you can. Also, we tend to keep a check of where we are spending money when we pay with cash, whereas it is rather easy to forget what we have paid when we use our credit cards. If you want to keep a tight hold on your expenses, pay with cash.

Aim to donate 8% of your income. Giving away not only benefits the receiver but also the giver. It is important to be generous in order to feel satisfied and fulfilled in life. When we give, we realize better how much as have and how much we can offer others.

Make the big spender manage the finances. If you live in a family where there is someone who is spending more than others, put that person in charge of managing all finances. That way, they will become much more aware of their spending, and will keep others in order as well.

These are tips that anyone is free to follow. They have worked for me and my friends, and surely can work for you too! Always remember that becoming financially free doesn’t mean just earning more money, but also changing your entire spending behavior and psychological approach to money matters.

Mutual funds have become a very popular and effective way for investors to take part in the financial markets in a simple, low cost manner, while muting risk characteristics by branching investments out into different securities, which is also called diversification, which is a main part of an individual’s investment plan.

A mutual fund is one pool of money that investors can put contributions that will be invested depending on the purpose of the scheme. Mutual funds offer potential for capital growth through investment performance, dividends, and distributions with the help and advice of a portfolio manager who makes investment decisions on behalf of the mutual fund plan holders.

Mutual funds have increasingly become the investment product of choice among investors, when it comes to long term investment. It is very important to properly study the performance of the mutual fund and understand what the play off is between risk and return to understand how a particular mutual fund scheme is performing. Risk is proportional to return, therefore, investments made within a certain risk level will get maximum return, which helps separate those funds that perform better form the stragglers.

There are many asset management companies working in India, so it’s important to study performance which will help decide on the appropriate mutual fund.  Once the money is invested, the money is pooled into different assets. An equity fund would hold all equity related financial instruments, while a debt fund would invest into bonds, debentures.

The most important factor that decides if you’ll meet a target or no depends on the nature of the investment .You need to first decide which asset class to invest into. The choice comes down to either debt or equity.

The different prices depend on the kind of mutual fund. Those with the higher chance of decreasing in value also are the same funds that can yield good returns over a period of time. The lesson is that there are two sides to risk: your investment values will vary but that is exactly why you can expect high returns.

Debt refers to bank deposits, government backed deposits, and other deposits and mutual funds that invest in debt paper. Equity refers to stock and equity mutual funds both. Debt is obviously less risky than equity, but if you’re planning for a precise investment, you should think of debt and equity differently.

The risk and return curves of both varies in a different way and over different time scales. This is the notable difference between the two. Debt returns are relatively predictable and there are many government backed deposits available to investors in India.

Risk i.e. volatility, refers to the up and down activity in the markets, along with other various issues that may occur over a period of time. This volatility can be attributed to interest rate changes, inflation, or certain economic conditions. This uncertainty does cause a lot of worry to investors, as we all naturally would become scared when a stock we have invested in has plummeted greatly. However, this volatility also does earn high returns over time, as opposed to a savings account.

Debt returns are usually low and merely exceed the inflation rate. Equity returns can be potentially higher but can also be very volatile. But equity volatility usually doesn’t last too long. For any investments kept longer than 3, 4, or 5 years, equity investments are likely to give good solid returns, if you stick to the large cap companies and slowly invest, such as through an SIP.

The entire return to risk ratio is far more attractive with equity than debt at a long time period, as the risk with equity drops over time. To put it simply, go with debt for the short term and equity for the long term.

Real estate has been the most dynamic and evolving segment of the economy.  In the erstwhile era, while our forefathers would purchase and immediately register the property in their name.  However, in the present era, the property is purchased and the installments are paid on the basis of stage of completion.  On completion of the project, the possession certificate and occupancy certificate will be handed over to the purchaser and the registration process would be completed

In this regard, the question arises what should be the date of acquisition of the property.  This becomes a relevant date to determine capital gains tax.  When the house property is sold, the capital gains classified as long term or short term based on the period of holding. 

It becomes important to understand the following:

Allotment letter - in case of under-construction property, the builder provides an allotment letter to the purchaser.  This letter encompasses details regarding the flat, the payment options and any extra charges etc. It also includes the construction schedule, house plans, delivery date and builder’s liability in case of late completion or problems after possession. Generally, it is issued to you upon payment of the 15 per cent of the property value to the developer.

Possession certificate - A possession certificate is issued by the builder in favour of the purchaser incorporating the date of possession of the property.  It is provided after the builder gets a completion certificate from the designated authority.

Occupancy Certificate – Upon the completion of the project, the local government authorities issue occupancy certificate, certifying that the project has been built by adhering to the applicable regulations.

These three are important events at the time of purchase of under construction property. There have been multiple controversy on the date of acquisition.  Based on the CBDT circular No. 672, dated 16-12-1993 “It was clarified therein that cases of allotment of flats under the Self-Financing Scheme of the Delhi Development Authority (DDA) should be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act.”.

Given the above circular, it can be concluded that date of acquisition would be the date of allotment letter and capital gains would be computed accordingly.

Who is an Expatriate–

Expatriate is one who left his/her home country and moved to the other country for work during the year. It can be in two ways one who comes to India is called Inbound employee and who leaves India for the purpose of employment called as Out bound employee:

Importance of Residential status in India:

Unlike the taxability based on citizenship in few countries, in India the taxability is based on Residential status in India. Our tax year starts from April 1 to March 31 and the tax return needs to be filed on before July 31^st of the succeeding tax year.

The taxation will vary based on your residential status in India  

If a person stays in India for more than 183 days

OR

Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the relevant financial year.

Then if additional conditions satisfied then he will be considered as Resident and Ordinarily Resident and global income is taxable in India in other case will be considered as Resident but not ordinarily resident and only income received in India or accrued in India will be taxable in India.

Additional conditions

He has been a resident of India in at least 2 out of 10 years immediately previous years

and

he stayed in India for at least 730 days in 7 immediately preceding years

Compliance from employee perspective
Obtain the correct VISA for working in India or moving out of India
Ensure the FRRO registration if applicable and even update the local police station in case of change of place from the initial registration.
Obtain the Permanent Account Number (PAN) and Social Security number (PF Number) if not held by the employee.
Submit the proof of investments / income from other than current employer/other income which needs to be captured in the withholding tax calculation
File form 67 if any foreign tax credit claimed during the year before filing the India tax return
Filing of the India tax return before the due date to avoid penalty and carry forward of losses to the future years.

Compliances from Employer Perspective:
Providing necessary documentation for the VISA process
Assisting the foreign employer for the FRRO registration within 14 days from the arrival
Depositing the salary after withholding the income tax, social security contribution
Calculating the ESOP valuation if applicable
Filing of the withholding tax returns considering the expatriate employees
Issuing the withholding tax certificate

Impact of non- filing or incorrect filing

IF the employee is unable to file the return before the due date, he may need to pay the penalty and lose the opportunity to carry forward the loss.

Incorrect information may lead to concealment of income and penalty will be levied by the tax authorities

Incorrect information leads to wrong claiming of foreign tax credit and incorrect tax credit claim which leads to non-acceptance of the return by the tax authorities and demand with penalty will be levied.

Investments under 80 C – for India Income Tax authorities-

Amount up to Rs 1.5 lakh can be invested by the Individual to claim the deduction under sec 80C of the Act. There are multiple options like LIC, Tax saving deposits, NSC, Tuition fees, Interest on the housing loan etc.

Disclosure of foreign Assets by Residents –

Once an Individual is considered as Resident, he is supposed to disclose the foreign assets/liabilities as per the Income tax return form applicable to them. Non-disclosure and wrong disclosure will amount to penalty, fine and imprisonment under various sections as per the Black Money ( Undisclosed Foreign income and assets) and imposition of tax Act, 2015 which came into effect from April 1, 2016.

https://www.incometaxindia.gov.in/pages/acts/black-money-undisclosed-income-act.aspx

Transfer of funds by expatriate:

Once the amount which are genuinely taxed in the respective countries based on the tax laws prevailing. The limit of transfer of funds to outside India and to India will be governed by the FEMA and RBI guidelines in place.

Bank accounts:

An Indian resident can hold foreign bank accounts outside India but the same needs to be disclosed in the ITR form based on the applicability and needs to offer the income arise out of the same in the India tax return.

In the NRE account the person hold the funds in foreign currency and in NRO account he can deposit both Indian and foreign currency.

Basically, NRE account is maintained to park the foreign funds in India and NRO account is maintained to get the credits from the Indian sources like rent, dividend, interest etc.

Introduction

Retaining and keeping the employees highly motivated is of utmost importance to any organization.  There are various strategies adopted by Companies to do so.  One of the many strategies is issuing stock options.  SEBI has formulated the Securities and ExchangeBoard of India (Employee StockOption Scheme and Employee Stock PurchaseScheme) for governing ESOP’s in India.

Taxation of ESOP’s in India was brought in the Finance Act, 1999.  ESOP is taxed in two stages:

Same is explained below with an example:

In cross border stock option plans, the employees of Indian companies are allowed to participate in the global stock option plans of the group companies.  There are multiple laws and regulations to be adhered to, such as, exchange control, labor laws, taxation, etc.

As discussed above, taxation of ESOP occurs in two stages.  In the first stage, the employee pays taxes at the time of exercising the option.  The employer would be required to deduct taxes at source.  However, in the global stock options, there is no employer-employee relationship with the India employee and the foreign company. 

To give rise to “perquisite” an employer-employee relationship is necessarybetween the company issuing the options and the options. In cross border stockoption plans, as the Indian company does not issue options, no “perquisite” canbe said to arise.  However, the Authority for Advance Rulings in case Microsoft Corp US [1999] 102 Taxman 74 (AAR), it was held the foreignholding company and the Indian subsidiary should be treated as the sameentities and the stock options granted by a foreign company to the employees of wholly owned company should be taxed in India and the foreign company would have to deduct taxes.

Taxation of dividends received on ESOP - Dividends repatriated into India are subject to tax as ordinaryincome. They are not added to the salary of the employee and the local employeris not required to withhold taxes. If under the laws of the country (where thecompany issuing the options is a resident) taxes have been withheld at source,then depending upon the relevant treaty provisions the Indian resident employeemay be able to obtain tax credits.

Provisions of Income-tax Act, 1961 (“the Act”)

Any person responsible for paying to a non-resident, any other sum chargeable under the provisions of this Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.

Given the above, it is clear that the rental payment made to non-resident has to be tax deducted.  The rate in force is 31.20%.  For example if the rent is ₹10,000 TDS would be ₹3,120 and the payment would be ₹6,880.

Compliances

1. Tax deduction Account Number (TAN)

As per the Act, any person responsible to deduct taxes needs to obtain tax deduction account number (TAN).  This can be done online through the NSDL website.  Once the TAN number is issued, the tenant can deduct tax every month and pay it online.  TDS needs to be paid by the tenant by the seventh of each calendar month, following the month in which tax is deducted

2. Filing of TDS returns

The tenant would have to file quarterly returns in form 27Q. The timeline for the same is tabulated below:

3. Submission of Form 15CA

A person making a remittance to a Non-Resident Indian has to submit Form 15CA. This form has to be submitted online. In some cases, a certificate from a chartered accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate, and TDS deduction as per Section 195 of the Act, if any DTAA (Double Tax Avoidance Agreement) is applicable, and other details of nature and purpose of the remittance.

Form 15CB is not required when:

• Remittance does not exceed ₹5,00,000 (in total in a financial year). Only Form 15CA has to be submitted in this case.
  (a) Section 195 of the Act
  (b) Section 203A of the Act

• If lower TDS has to be deducted and a certificate is received under Section 197 for it or lower TDS has to be deducted by order of the AO.
• Neither is required if the transaction falls under Rule 37BB of the Act, where it lists 28 items. Check out the entire list here.

In all other cases, if there is a remittance outside India, the person who is making the remittance will take a CA’s certificate in Form 15CB and after receiving the certificate submit Form 15CA to the government online.

• Failure for not obtaining TAN – Penalty of ₹10,000 could be imposed by the Assessing Officer
• Failure for non-deduction of TDS -  interest of one percent per month from the date date on which tax was deductible to the date of actual deduction
• If a payer fails to pay the tax deducted to the credit of the Central Government, under the provisions of Chapter XVII-B, the payer shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.
• Non-filing of TDS returns – Penalty of ₹10,000 to maximum of ₹100,000.