Capital Gain Tax Implications on Sale of Employee Stock Options 
Save Tax on Capital Gain
Save Tax on Capital Gain With Tax Planning at H&R Block India
August 6, 2018
impact of gst on transport services
Impact of GST on Transportation
August 14, 2018

Sale of Employee Stock Options : Capital Gain Taxation

tax on employee stock option

The Bamboo Stone, a company specializing in tiles, originating in Germany, with offices across the world, issues stocks to its senior management upon the completion of 5 years in their respective post. Nysa, the VP of International Sales, who had been with the company for 20 years, was resigning and therefore cashing out her employee stock options. Nysa, an Indian Citizen, having lived and worked in various countries around the world with The Bamboo Stone, had been having her taxes done by the International Tax Company, H&R Block. So, she knew that by encashing her foreign stocks in the company, there would be tax implications, which she would need to address.

tax implications of selling employee stock options

Since, she was planning on joining a new company in Delhi, she decided to make an appointment with Shuba, her tax advisor at H&R Block India. Upon arriving at the H&R Block office Shuba greeted her with a heartfelt smile, as always and they sat down and started discussing Nysa’s unique situation over a cup of hot coffee. Shuba explained as Nysa had been in possession of shares for nearly 8 years and as they were shares in the foreign division, based in Germany, at the time of cashing out her employee stock option plan, the shares would be subject to Long Term Capital Gains (LTCG) tax of 20%.

tax on capital gains

Additionally, as she had filed her tax return in Germany recently also, she would be able to claim Foreign Tax Credit (FTC) to reduce her tax liability in India. Shuba also suggested, that as Nysa had mentioned since she would be settling in Delhi and therefore looking at perhaps purchasing property, she may want to use her gains from her shares and invest it into the property she purchases to avoid taxation, as per section 54F. As Nysa had no other residential property, she could avail of the benefits of section 54F, provided she does not sell the property within 3 years else the capital gain exemption would be reversed and she would be liable to capital gains tax of 20% with indexation.

So, as per Shuba’s advice, Nysa filed her tax return in India availing of FTC and additionally, Shuba helped her plan the purchase of her new house property by utilizing the exemption u/s 54F from the sale of her shares.

sale of employee stock option

Nysa was so surprised at the ease at which the whole process took place, with little distress. She was so thankful to Shuba at H&R Block India and she realized how complicated the situation could have been and Nysa may have to had to pay a significant amount in taxes if it hadn’t been for the expert advice she received from Shuba.

Leave a Rating!
5.0 (4 Votes)
CA Madhuri Marne
CA Madhuri Marne
Madhuri is a tax expert at H&R Block (India) with over a decade of professional experience. Having co-authored a book on economics for the ICAI exam, she now enjoys writing about tax-related topics in a simple and easy manner. Outside of work, Madhuri is passionate about teaching students who are appearing for professional exams.