Buyback of shares issued at discounted rate

[Common Issues]

An assessee got shares at discounted rate from its employer two years back. Now company (employer) and buy back the sahres from the employee at market rate.

Now, whether, profit earned by the employee assesse is taxable under the provisions of Income Tax? If yes, would it be taxable as Salary to capital gain.

Further, whether the employee would be eligible for exemption under section 54F or any other provisions available for investing profit arising out of long term capital gains?

[Surender Gupta]

See section 17(2) of Income Tax Act, 1961. which specifies that any Employees' Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued in this behalf by the Central Government shall not be treated as perquisite.

Whether the shares were issued to the employees under the scheme.

Further, if the shares are listed and fulfill the conditions of section- 10(38)), the profit arising therefrom shall be exempted.

If the same is not exempted u/s 10(38), in my view certainly the same would qualify for exemption in view of section 54F of the Income Tax Act, 1961.

AI Summary

Tax Implications on Selling Discounted Shares: Salary or Capital Gain? Evaluate Sections 17(2), 10(38), and 54F for Exemptions. An individual received shares at a discounted rate from their employer and is now considering selling them back at the market rate. The query is whether the profit from this transaction is taxable as salary or capital gain under the Income Tax Act. A response suggests examining section 17(2) to determine if the shares were part of an Employee Stock Option Plan, which might not be treated as a perquisite. If the shares meet section 10(38) conditions, the profit could be exempt. Otherwise, section 54F might offer an exemption for long-term capital gains.