Union Budget 2020 India Expectations: 'Prorate taxation' in respect of mobile employees should be introduced, says expert

Union Budget 2020 India Expectations: The government of India should look to introduce prorate taxation in respect of mobile employees in the Union Budget 2020 (#BudgetOnZee), says Divya Baweja, Partner, Deloitte India. She said that currently, stock options are subject to tax at the time of allotment of shares, taxable value being excess of fair value of shares over the exercise price.

"When an employee takes up assignments outside India, the benefit from stock options has to be prorated based on the assignment tenure in each country during the vesting period. In case of mobile employees who qualify as Non resident or Resident but not ordinarily resident who exercise stock options, only pro-rata value in respect of days spent in India during the period grant to vest should be subject to tax in India based on OECD commentary and various judicial precedents," she said.

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Baweja added that this principle is not expressly stated in the income tax laws.

"Hence, some companies reduce taxes on the entire income instead of income only attributable to the India service period. This increases the tax outflow for the employee. Explicit provisions in income tax laws can remove such ambiguity. It is recommended that the Act should specifically provide for prorate taxation in respect of mobile employees who qualify as NR or NOR," she explained.

Baweja added that the valuation basis for stock rewards where the stock is on an overseas stock exchange, is also complex and is arrived at based on a Category I merchant banker’s certificate. Adopting stock price from an overseas stock exchange could help ease the procedural complexity.

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