The Hindu Business Line : Taxation of employee benefits and balance transfer

MY ORGANISATION has issued shares to its employees. Under this scheme, eligible employees are offered shares at a discounted price, that is below the market prices and also free of cost. Kindly explain the tax treatment in respect of this benefit in the hands of the employees.

Anurag

Reply

Section 17(2) provides that the value of any benefit or amenity provided free of cost or at a concessional rate by an employer will be treated as a perquisite in the hands of the employee. This, however, does not include the value of any benefit provided by a company free of cost or at a concessional rate to its employees by way of shares, debentures or warrants under an employees stock option plan or scheme provided the same is in accordance with the guidelines issued by the Central Government (these guidelines can be found in Notification No.323/2001 (F No.142/48/2001-TPL) dated 11.10.2001). In the reader's case, if the shares are allotted adhering to these guidelines, there will be no tax implication at the time of such allotment by the employer company.

If, however, the allotment is not in adherence with the guidelines, the difference between the market value and the price at which the shares are offered to the employees will be treated as a perquisite at the time of such allotment.

Query

At the time of my resignation from my employer company, I have had to forego a notice pay equivalent to my 34 days salary. Will this notice pay be an allowable deduction in computing my income under the head salaries?

Naresh Vajawat

When incomes are computed under different heads only the deductions permissible under those respective heads can be claimed.

In respect of salary, other than the exemptions under Section 10, the only deductions permissible are those available under Section 16. The deductions available under Section 16 are as follows:

Standard deduction.

Tax on employment.

Entertainment allowance in case of government employees.

Normally, it will not be possible for any other sums to be deducted in computing income under the head "salaries". If, however, it is possible to take a view that the salary has been surrendered, the same may not be taxable under the head "salaries".

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