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ESOP deduction still a grey area Share · Comment · print · T+ Related TOPICS taxation and taxes corporate tax income tax It is common practice amongst corporates to offer Employee Stock Option Plan, or ESOPs, in lieu of remuneration to incentivise employees and give them a sense of ownership. Under ESOP, the company issues shares to employees at below market price (called option price), and employees can choose how long they remain invested after the locked-in period. Additionally, companies recognise an expense equivalent to the difference between the share’s market price and the exercise price. The tax deductibility of this expense has always been a grey area, and the conflicting view of the judiciary has added to the confusion. Earlier, the Delhi Tribunal held that such expenditure is notional and, therefore, not deductible. However, recently, the Madras High Court held it as deductible expenditure if recognised under SEBI regulations. Nonetheless, this issue promises to be a new battleground for revenue authorities and corporates, given the high stakes involved. TDS cloud over data transmission The telecom sector, already weighed down by the spectrum scam, now has a new reason for worry. Another retrospective amendment in the income tax law could possibly bring payments to telecom service providers into the TDS net. This amendment, which has created a stir among corporate taxpayers, has considerably widened the definition of royalty tax to include payments for data transmission through cables, optical fibre and similar technology. Technically, this could imply that expenditure on broadband, leased lines, landline and so on may be liable to withholding tax. The retrospective amendment may have ended the longstanding controversy over the applicability of withholding tax provisions on payment to domestic service providers. However, as far as international payments are concerned, the applicability of tax treaty provisions may take the controversy to another level. Nonetheless, this new piece of legislation shall have a far-reaching impact on the telecom sector and its ever-expanding customer base. Retrospective worries Although retrospective amendments in law are not uncommon, the recent flurry of retrospective tax amendments nullifying rulings of the Supreme Court has invited fierce condemnation from taxpayers. It appears as though the Government always has its way in the end in any controversial tax issue. Before the Vodafone saga unfolded, Prime Minister Manmohan Singh had promised the erstwhile UK Prime Minister Gordon Brown that the Government would not resort to retrospective amendments even if it loses the case in the Apex Court. The new Finance Minister, P. Chidambaram has assured a review of these retrospective amendments with a view to ensuring fairness. While the outcome of the review will be much-awaited, the fate of billions of dollars in tax money hangs in the balance. Taxing times for pharma freebies Medical and allied healthcare industries commonly distribute freebies, samples of new medicines and other promotional goodies to medical practitioners, as an advertising strategy. Further, such expenditure was claimed as deduction while computing income. The Medical Council of India prohibits medical practitioners and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from pharmaceutical and allied health industries. The healthcare corporates’ practice caught the attention of tax authorities, and the Central Board of Direct Taxes issued a circular terming the distribution of freebies a violation of MCI provisions; it disallowed tax deduction claims for such freebies for the pharmaceutical or allied health sector industries or other assesses that provided them. CBDT further clarified that a sum equivalent to such freebies shall be taxable for the recipient — that is, medical practitioners or professional associations accepting such freebies. The circular is expected to go a long way in curtailing activities of medical practitioners that go against the MCI

ESOP deduction still a grey area Share  ·   Comment   ·   print   ·   T+   Related TOPICS taxation and taxes corporate tax  income tax  It is common practice amongst corporates to offer Employee Stock Option Plan, or ESOPs, in lieu of remuneration to incentivise employees and give them a sense of ownership. Under ESOP, the company issues shares to employees at below market price (called option price), and employees can choose how long they remain invested after the locked-in period. Additionally, companies recognise an expense equivalent to the difference between the share’s market price and the exercise price. The tax deductibility of this expense has always been a grey area, and the conflicting view of the judiciary has added to the confusion. Earlier, the Delhi Tribunal held that such expenditure is notional and, therefore, not deductible. However, recently, the Madras High Court held it as deductible expenditure if recognised under SEBI regulations. Nonetheless, this issue promises to be a new battleground for revenue authorities and corporates, given the high stakes involved. TDS cloud over data transmission The telecom sector, already weighed down by the spectrum scam, now has a new reason for worry. Another retrospective amendment in the income tax law could possibly bring payments to telecom service providers into the TDS net. This amendment, which has created a stir among corporate taxpayers, has considerably widened the definition of royalty tax to include payments for data transmission through cables, optical fibre and similar technology. Technically, this could imply that expenditure on broadband, leased lines, landline and so on may be liable to withholding tax. The retrospective amendment may have ended the longstanding controversy over the applicability of withholding tax provisions on payment to domestic service providers. However, as far as international payments are concerned, the applicability of tax treaty provisions may take the controversy to another level. Nonetheless, this new piece of legislation shall have a far-reaching impact on the telecom sector and its ever-expanding customer base. Retrospective worries Although retrospective amendments in law are not uncommon, the recent flurry of retrospective tax amendments nullifying rulings of the Supreme Court has invited fierce condemnation from taxpayers. It appears as though the Government always has its way in the end in any controversial tax issue. Before the Vodafone saga unfolded, Prime Minister Manmohan Singh had promised the erstwhile UK Prime Minister Gordon Brown that the Government would not resort to retrospective amendments even if it loses the case in the Apex Court. The new Finance Minister, P. Chidambaram has assured a review of these retrospective amendments with a view to ensuring fairness. While the outcome of the review will be much-awaited, the fate of billions of dollars in tax money hangs in the balance. Taxing times for pharma freebies Medical and allied healthcare industries commonly distribute freebies, samples of new medicines and other promotional goodies to medical practitioners, as an advertising strategy. Further, such expenditure was claimed as deduction while computing income. The Medical Council of India prohibits medical practitioners and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from pharmaceutical and allied health industries. The healthcare corporates’ practice caught the attention of tax authorities, and the Central Board of Direct Taxes issued a circular terming the distribution of freebies a violation of MCI provisions; it disallowed tax deduction claims for such freebies for the pharmaceutical or allied health sector industries or other assesses that provided them. CBDT further clarified that a sum equivalent to such freebies shall be taxable for the recipient — that is, medical practitioners or professional associations accepting such freebies. The circular is expected to go a long way in curtailing activities of medical practitioners that go against the MCI

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CS MANOJ KUMAR BHAGAT

New Notifications in Service Tax 1. Notification No. 44/2012 Service Tax, dated 7-8-2012Section 93 of the Finance Act, 1994 - Amendment of Mega Exemption Notification No. 25/2012-ST - Exemption extended to slaughtering of all animals 2. Notification No. 45/2012 Service Tax, dated 7-8-2012Section 68(2) of the Finance Act, 1994 - Person liable to pay service tax - Reverse Charge Mechanism - Amendments to Notification No. 30/2012-ST - Company liable to pay service tax on services received from its directors & Recipients of security services to discharge 75% of service tax liability 3. Notification No. 46/2012 Service Tax, dated 7-8-2012Service Tax Rules, 1994 - Amendment of Rule 2 - Person liable to pay service tax - Company receiving services from its directors and recipients of security services liable to pay service tax thereon - Security Services Defined

New Notifications in Service Tax

1. Notification No. 44/2012 Service Tax, dated 7-8-2012Section 93 of the Finance Act, 1994 - Amendment of Mega Exemption Notification No. 25/2012-ST - Exemption extended to slaughtering of all animals 2. Notification No. 45/2012 Service Tax, dated 7-8-2012Section 68(2) of the Finance Act, 1994 - Person liable to pay service tax - Reverse Charge Mechanism - Amendments to Notification No. 30/2012-ST - Company liable to pay service tax on services received from its directors & Recipients of security services to discharge 75% of service tax liability 3. Notification No. 46/2012 Service Tax, dated 7-8-2012Service Tax Rules, 1994 - Amendment of Rule 2 - Person liable to pay service tax - Company receiving services from its directors and recipients of security services liable to pay service tax thereon - Security Services Defined

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