sweat equity

Querist : Anonymous (Querist) 28 April 2010 This query is : Resolved
Can Sweat equity allotment to an employee of an unlisted company be without any lockin? Is there a way to avoid the lockin?
Is the tax levied on sale of seat equity, a capital gain or will be treated as Perquisite income and taxable as part of the salary?

Need your guidance. thanks.

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Parthasarathi Loganathan (Expert) 28 April 2010
Yes tax levied on sale of equity will be treated as Perquisite income and taxable as part of the salary

Raj Kumar Makkad (Expert) 29 April 2010
The opinion of Partha is accurate.

Vineet (Expert) 29 April 2010
Tax levied on sale of sweat equity is capital gain like any other share sale transaction. The cost of acquisition shall be the cost on date of vesting adopted for the purposes of computing peruisite value.

For lockin period and exemption thereof, requested to contact a company lawyer or company secretary. As far as taxation goes, if the equity allotted by company to its employess loses the character of sweat equity i.e. the equity awarded to retain such employee for a certain period with lockin clause, then such allotment will go out of perquisite and be treated as income from other source u/s 56(v) of the Act.

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