{"id":601,"date":"2015-11-21T12:35:19","date_gmt":"2015-11-21T07:05:19","guid":{"rendered":"http:\/\/carajput.com\/blog\/?p=601"},"modified":"2024-04-05T12:25:57","modified_gmt":"2024-04-05T06:55:57","slug":"esops-taxation-in-india","status":"publish","type":"post","link":"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/","title":{"rendered":"Overview on ESOP&#8217;s Taxation In India"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_58 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Page Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a1e7139237ec\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #000000;color:#000000\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #000000;color:#000000\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a1e7139237ec\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Overview_on_ESOPs_Taxation_In_India\" title=\"Overview on ESOP&#8217;s Taxation In India\">Overview on ESOP&#8217;s Taxation In India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Calculation_of_taxation_of_ESOP\" title=\"Calculation of taxation of ESOP\u00a0\">Calculation of taxation of ESOP\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#How_to_calculate_the_Fair_Market_Value_of_ESOP\" title=\"How to calculate the Fair Market Value of ESOP\u00a0\">How to calculate the Fair Market Value of ESOP\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Income_Tax_implications_of_ESOPs\" title=\"Income Tax implications of ESOPs\">Income Tax implications of ESOPs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Advance_capital_gains_tax\" title=\"Advance capital gains tax\">Advance capital gains tax<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Other_factors_were_involved_to_be_kept_in_mind_while_dealing_the_ESOP_Taxation\" title=\"Other factors were involved to be kept in mind while dealing the ESOP Taxation.\">Other factors were involved to be kept in mind while dealing the ESOP Taxation.<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Short_term_or_long_term_gains\" title=\"Short term or long term gains\">Short term or long term gains<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#While_you_have_suffered_a_loss\" title=\"While you have suffered a loss\">While you have suffered a loss<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#The_listed_or_unlisted_shares_in_case_of_ESOP_Transaction\" title=\"The listed or unlisted shares in case of ESOP Transaction\u00a0\">The listed or unlisted shares in case of ESOP Transaction\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Residency_status\" title=\"Residency status\">Residency status<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#The_Disclosure\" title=\"The Disclosure\">The Disclosure<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#ESOP_Trust\" title=\"ESOP Trust :\">ESOP Trust :<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Once_options_are_not_being_exercised\" title=\"Once options are not being exercised\">Once options are not being exercised<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#NRI_Employee_Stock_Option_Plan\" title=\"NRI Employee Stock Option Plan\">NRI Employee Stock Option Plan<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#ITAT_orders_HDFC_Banks_Dubai-based_executive_to_pay_ESOP_tax_in_India\" title=\"ITAT orders HDFC Bank&#8217;s Dubai-based executive to pay ESOP tax in India\">ITAT orders HDFC Bank&#8217;s Dubai-based executive to pay ESOP tax in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#ESOP_Affects_for_Startups\" title=\"ESOP Affects for Startups\">ESOP Affects for Startups<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Who_is_the_main_person_who_impacted_by_this_ESOP_tax_deferment_benefits\" title=\"Who is the main person who impacted by this ESOP tax deferment benefits?\">Who is the main person who impacted by this ESOP tax deferment benefits?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/carajput.com\/blog\/esops-taxation-in-india\/#Tax_treatment_in_respect_of_contributions_related_to_Employees_Provident_Fund\" title=\"Tax treatment in respect of contributions related to Employees Provident Fund\">Tax treatment in respect of contributions related to Employees Provident Fund<\/a><\/li><\/ul><\/nav><\/div>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/images-26.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-10578\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/images-26.jpg\" alt=\"\" width=\"920\" height=\"451\" \/><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Overview_on_ESOPs_Taxation_In_India\"><\/span>Overview on ESOP&#8217;s Taxation In India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"color: #993300;\">What&#8217;s the ESOP?<\/span><\/p>\n<p>ESOP or Employee Stock Option Plan \u2013 also referred to as Employee Stock Ownership Plans in India \u2013 is a scheme by which a company allows its employees to purchase shares of the company.<\/p>\n<p>In some cases, a <a href=\"https:\/\/carajput.com\/blog\/a-forign-company-open-a-branch-office-in-india\/\">foreign holding company<\/a> offers such an option to employees of an Indian subsidiary. Under that same scheme, employees are given choices which enable the employee to purchase the stock at a rate just below the prevailing market value of the stock or provide the employee for a certain proportion of his or her compensation in the company&#8217;s stock.<\/p>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/images-25.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-10576\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/images-25.jpg\" alt=\"\" width=\"822\" height=\"128\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/images-25.jpg 569w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/images-25-300x46.jpg 300w\" sizes=\"(max-width: 822px) 100vw, 822px\" \/><\/a><\/p>\n<p>ESOPs and RSUs have become increasingly common in India, with jobs starting to gain wide acceptance. Several multinational companies with employees in India are also going to offer ESOPs. Let&#8217;s see how ESOPs are required to pay taxes.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Calculation_of_taxation_of_ESOP\"><\/span><span style=\"color: #ff9900;\"><strong>Calculation of taxation of ESOP\u00a0<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/images-281.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-10579\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/images-281.jpg\" alt=\"\" width=\"913\" height=\"409\" \/><\/a><\/p>\n<p><span style=\"color: #000080;\"><strong>ESOPs are taxed on Two occasions \u2013<\/strong><\/span><\/p>\n<p><span style=\"color: #000080;\"><strong>At the time of exercise, as a perquisite.<\/strong> :<\/span> In case employee exercises the ESOP Option, he or she essentially agrees to purchase; the difference between the Fair market value (on the exercise date) &amp; the exercise price is taxed as perquisite.<\/p>\n<p>On this perquisite, the employer deducts Tax deducted at sources. This amount is shown in Form 16 of the employee &amp; is included under the head of the total Income from salary in his income tax return.<\/p>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/560x283_LI.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-10581\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/560x283_LI.jpg\" alt=\"\" width=\"913\" height=\"460\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/560x283_LI.jpg 560w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/560x283_LI-300x151.jpg 300w\" sizes=\"(max-width: 913px) 100vw, 913px\" \/><\/a><\/p>\n<p>In the event that the employer did not deduct <a href=\"https:\/\/www.caindelhiindia.com\/blog\/apply-online-nil-lower-tds-deduction-certificate-form-13\/\">TDS <\/a>and pay it to the Govt as stated above, the employee should pay the tax on the very same dates. In these cases, the tax rates and the TDS rates shall be the ones applicable for the year that the ESOP has been allotted.<\/p>\n<p><strong><span style=\"color: #000080;\">Budget 2020 amendment: from the year 2020-21:<\/span> E<\/strong>mployees receiving ESOPs from qualified start-ups do not have to pay tax in the year they exercise the option. The TDS on the &#8216;prerequisite&#8217; is deferred from the following situations:<\/p>\n<ul>\n<li><span style=\"color: #993366;\">Expiry of 5 years from the year of ESOP allocation.<\/span><\/li>\n<li><span style=\"color: #993366;\">Date of sale by the employee of the ESOPs<\/span><\/li>\n<li><span style=\"color: #993366;\">Date of termination of employment.<\/span><\/li>\n<\/ul>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/ESOP-.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-10590\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/ESOP-.jpg\" alt=\"\" width=\"945\" height=\"401\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/ESOP-.jpg 344w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/ESOP--300x127.jpg 300w\" sizes=\"(max-width: 945px) 100vw, 945px\" \/><\/a><\/p>\n<p><strong><span style=\"color: #000080;\">At the time of the employee&#8217;s sale \u2013 as a capital gain:<\/span> <\/strong>In case of employee may choose to sell the shares as soon as they are purchased by the employee. If the employee sells such shares, there will be another tax event. The difference between the sale price and the FMV at the exercise date is taxed as capital gains.<\/p>\n<p><span style=\"color: #00ff00;\"><strong>Exercise price \u2014\u2014-&lt;<em>Perquisite<\/em>&gt;\u2014\u2014-FMV on exercise date\u2014\u2014&lt;<em>capital gains<\/em>&gt;\u2014\u2014sale price<\/strong><\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_to_calculate_the_Fair_Market_Value_of_ESOP\"><\/span><span style=\"color: #ff0000;\"><strong>How to calculate the Fair Market Value of ESOP\u00a0<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h2><span class=\"ez-toc-section\" id=\"Income_Tax_implications_of_ESOPs\"><\/span><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/ESOP_flowchart.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-10570\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/ESOP_flowchart.jpg\" alt=\"\" width=\"920\" height=\"709\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/ESOP_flowchart.jpg 627w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/ESOP_flowchart-300x231.jpg 300w\" sizes=\"(max-width: 920px) 100vw, 920px\" \/><\/a><span style=\"color: #000080;\">Income Tax implications of ESOPs<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li>ESOP Options provided by the company are not taxable.<\/li>\n<li>Vested options are not taxable.<\/li>\n<li>In case the employee exercises the option of buying shares, then the difference between the Fair market value of the shares &amp; the exercise value of the share will be taxable according to the tax bracket employee falls under.<\/li>\n<li>When an employee sells the shares it is considered capital gains. If the employee sells the shares within one year 15% tax is levied against the capital gains. If the employee sells the shares after one year they are considered long term assets and are not taxable.<\/li>\n<li>When an employee has ESOPs in a company based abroad when the shares are sold it will be considered <a href=\"https:\/\/carajput.com\/blog\/tag\/ltcg-stcg-not-chargeable-to-tax-to-non-resident-on-account-of-dtaa-benefit\/\">STCG<\/a> &amp; will be added to the income of the employee. The employee will be taxed according to the tax bracket she\/he falls into after that.<\/li>\n<li>When capital gains are long term, ten per cent tax will be applicable without the benefit of indexation, or twenty per cent tax will be levied with the indexation benefit.<\/li>\n<\/ul>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/Taxation-on-Employees-Stock-Option-Plan-in-India_1.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-12366\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/Taxation-on-Employees-Stock-Option-Plan-in-India_1.jpg\" alt=\"\" width=\"916\" height=\"551\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/Taxation-on-Employees-Stock-Option-Plan-in-India_1.jpg 512w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/Taxation-on-Employees-Stock-Option-Plan-in-India_1-300x180.jpg 300w\" sizes=\"(max-width: 916px) 100vw, 916px\" \/><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Advance_capital_gains_tax\"><\/span><span style=\"color: #000080;\"><strong>Advance capital gains tax<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Advance tax regulations require that your tax fees (predicted for the whole year) be paid in advance. Advance tax is paid in instalments. Whereas the employer deducts TDS when you exercise your choices, you may have to pay advance tax if you have obtained capital gains.<\/p>\n<p>For the 2020-21 financial year, individual instalments are due on 15 June, 15 September, 15 December and 15 March. You have to pay 100% of your taxes by March 15th.<\/p>\n<p>Non-payment or late payments of advance tax results in criminal interest pursuant to Sections 234B and 234C.<\/p>\n<p>Even then, it may be difficult to estimate the tax on capital gains and the advance tax on deposits during the first few instalments if the sale takes place later in the year. Consequently, when advance tax instalments are paid, no criminal interest is charged if the instalment is short due to capital gains. Residual instalment (after the sale of shares) of advance tax so if due must include a tax on capital gains.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Other_factors_were_involved_to_be_kept_in_mind_while_dealing_the_ESOP_Taxation\"><\/span><span style=\"color: #ff6600;\"><strong>Other factors were involved to be kept in mind while dealing the ESOP Taxation.<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Some other aspects must also be considered in order to accurately calculate the sales tax of ESOPs.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Short_term_or_long_term_gains\"><\/span><span style=\"color: #000080;\">Short term or long term gains<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The rate at which your capital gains are taxed depends on the length of their holding. The holding period shall be measured from the time of exercise to the date of sale. Equity shares listed on a recognised stock exchange (where STT is paid on sale) are considered to be long-term gains when held for more than one year. If sold within one year, short-term gains are considered. Currently, long-term earnings on listed equity shares are tax-free, while short-term earnings are taxed at 15%.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"While_you_have_suffered_a_loss\"><\/span><span style=\"color: #000080;\">While you have suffered a loss<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>In the event that you have incurred a loss, you are permitted to bring forward short-term capital losses in your tax return and modify and set them against the gains in the coming periods.<\/p>\n<p>When you have bear the Long term loss on equity shares is a dead loss &#8211; i.e no use of it and has no income tax treatment of it, simply because capital gains on it is also not taxable as well.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_listed_or_unlisted_shares_in_case_of_ESOP_Transaction\"><\/span><span style=\"color: #000080;\">The listed or unlisted shares in case of ESOP Transaction\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The Income Tax Act distinguishes between the tax treatment of listed and unlisted shares. The tax treatment for shares not listed in India or listed outside Is still the same because. That is, if you own the shares of an American company, they won&#8217;t be listed in India. They may be regarded unlisted for the purpose of taxes in India. Shares are short-term if held for less than 3 years and long-term if sold after three years. The period of holding starts from the exercise date up to the date of sale. Throughout this case, short-term earnings are taxed at income tax slab rates, and long-term earnings are taxed at 20% after cost indexation.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Residency_status\"><\/span><span style=\"color: #000080;\"><strong>Residency status<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Your income is taxable in India on the basis of your residence status. If you are a resident, all your income from everywhere in the world is taxed in India. And from the other hand, if you are a non-resident or resident but are not ordinarily resident and have exercised your choices or sold your shares, you may have to pay tax outside India. You may be able to reap the benefits of DTAA in such a case. It ensures that your income is not taxed twice.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_Disclosure\"><\/span><span style=\"color: #000080;\"><strong>The Disclosure<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Some many disclosures have been introduced to the tax return form for foreign assets. If you own ESOPs or RSUs of a foreign company, you may have to disclose your foreign holdings in accordance with the FA schedule of your income tax return. above disclosure in the income tax return needed to be applicable to a resident Assesse.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"ESOP_Trust\"><\/span><span style=\"color: #000080;\"><strong>ESOP Trust :<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p style=\"text-align: justify;\">Where assessee was an &#8216;ESOP Trust&#8217; created by settler-company for implementing its ESOP scheme the assessee was merely acting as &#8216;Special Purpose Vehicle&#8217;. Shares held by the assessee were in fiduciary capacity and assessee did not have absolute rights over those, so these shares could not be categorized as business assets. Thus, gain arising to the assessee on the transfer of shares to employees of settler-company was to be treated as capital gain and not as business profits &#8211; <span style=\"color: #ff9900;\"><strong><em>[2015] \u00a0(Mumbai &#8211; Trib.)<\/em><\/strong><\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Once_options_are_not_being_exercised\"><\/span><span style=\"color: #000080;\">Once options are not being exercised<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>On the date of termination, the employee shall have the right to exercise his opportunity or to purchase stocks. However, there is no necessity for the employee to choose not to exercise his or her option. There shall be no tax consequences for the employee in a quite case.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"NRI_Employee_Stock_Option_Plan\"><\/span><span style=\"color: #ff6600;\">NRI Employee Stock Option Plan<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Employee Stock Option Plan is a way to reward employees by offering Co Shares at a discounted rate. NRI Employee Stock Option Plan Shares come under the Non-PIS transaction &amp; are taxable in India.<\/p>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/nri-esop.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-10583\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/nri-esop.jpg\" alt=\"\" width=\"936\" height=\"589\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/nri-esop.jpg 606w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/nri-esop-300x189.jpg 300w\" sizes=\"(max-width: 936px) 100vw, 936px\" \/><\/a><\/p>\n<h3><span class=\"ez-toc-section\" id=\"ITAT_orders_HDFC_Banks_Dubai-based_executive_to_pay_ESOP_tax_in_India\"><\/span><span style=\"color: #ff6600;\"><strong>ITAT orders HDFC Bank&#8217;s Dubai-based executive to pay ESOP tax in India<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The Mumbai Bench of\u00a0Income Tax Appellate Tribunal (ITAT) ordered HDFC Bank&#8217;s Dubai-based manager to pay tax on ESOPs in India. Unnikrishnan V. S., the assessee, He is an individual who&#8217;s also an employee of HDFC Bank Limited, Mumbai, and is currently serving in Dubai&#8217;s HDFC Bank Representative Office. The assessee&#8217;s status is as the non-resident. During the financial cycle in reference, the assessee exercised the options assigned to the assessee by HDFC Bank Limited on 27 June 2008 (50%) and 27 June 2009 (50%) respectively (50 %).<\/p>\n<p>Once these options have been exercised in respect of 18,500 shares. The grant value for these options was Rs 219.74 per share, whereas its market price varied between Rs 507.40 to Rs 659, as at the date of exercise of the option. The perquisite value of these options is Rs.72,77,320, the gap in the market value of the shares with respect to the grant price of the shares. It was in this sense that, in respect of the exercise of options, HDFC Bank Limited deducted the tax at source on the said perquisite amount.<\/p>\n<p>However, on 28 August 2013, while filing income returns, declaring total income of Rs 78,50,010 and requesting income tax refunds of Rs 21,46,410, the assessee claimed relief of Rs 20,44,855 accordance with section 90 .<\/p>\n<p>When the income tax return was collected for inspection and this claim was further examined, the assessee submitted that &#8220;although the income from the ESOP perquisite was not chargeable to Tax in India, due to limitations in reporting and disclosure of the said income in the tax return, &#8221; the assessee had to report and disclose the said income in its form, as reflected in the return of income filed by the assessee and seek a refund of TDS by the employer(HDFC Bank).<\/p>\n<p>The employee of the bank also made an alternative request, stating that these amounts cannot be taxed in India, as provided for in the Indian-UAE Tax Treaty. Although rejecting the HDFC Bank employee&#8217;s contention that the ESOPs related to jobs in Dubai and income (perquisite value) did not accrue or exist in India and were therefore not taxable in India, the Coram headed by Vice President Pramod Kumar and Saktijit Dey rejected the HDFC Bank employee&#8217;s contention that Article 15 of the India-UAE tax treaty provides for taxation of the ESOP benefit in the country where the related employment benefit was accessible under income taxable in India. Thus, also under the tax treaty, it relates to services carried abroad as the ESOP income in India will be taxable in India.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"ESOP_Affects_for_Startups\"><\/span><span style=\"color: #000080; font-size: 16px;\">ESOP Affects for Startups<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<h3><span style=\"color: #000080; font-size: 16px;\"><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/731.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-10587\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/731-1024x431.jpg\" alt=\"\" width=\"905\" height=\"381\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/731-1024x431.jpg 1024w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/731-300x126.jpg 300w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/731-768x323.jpg 768w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/11\/731.jpg 1280w\" sizes=\"(max-width: 905px) 100vw, 905px\" \/><\/a><\/span><\/h3>\n<p>Its always been a high priority for startups to carry amazing talent to a high price salary. This is where ESOPs come in to help entrepreneurs get the right kind of talent, even if they can&#8217;t pay the extra salaries that companies pay. It is because startups can provide employees with a bit of company or ESOP over a specific time period called the vesting period. Employees are allowed to practise their ESOPs after the vesting period.<\/p>\n<p>The stock price provided to employees under ESOP (exercise price) is generally less than the market rate value of the stock.<\/p>\n<p>Presently, while the Finance Bill 2020 is yet to be implemented, ESOPs are taxed twice pursuant to section 17(2) of the Income Tax Act.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Who_is_the_main_person_who_impacted_by_this_ESOP_tax_deferment_benefits\"><\/span><span style=\"color: #000080;\">Who is the main person who impacted by this ESOP tax deferment benefits?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Not everyone companies and companies giving ESOPs advantage from this move is advantageous to certain start-ups that meet specific conditions-<\/p>\n<p>i. Start-ups must be incorporated between 01\/04\/2016 and 31\/03\/2021.<\/p>\n<p>ii. The total turnover of the start-up must be less than 100 crores for the year in which the advantage is sought.<\/p>\n<p>iii. It must be certified as a qualified start by the Inter-Ministerial Board of the Govt.<\/p>\n<p>The data in the public domain recommend that there are about 250 start-up companies holding certificates from the Inter-Ministerial Board. No employees affected by this &amp; the amount of cash that such employees will be able to retain the amount of income deferment for the Govt is not in public domain.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Tax_treatment_in_respect_of_contributions_related_to_Employees_Provident_Fund\"><\/span><span style=\"color: #000080;\"><strong>Tax treatment in respect of contributions related to Employees Provident Fund<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Tax treatment in respect of contributions made to and payment from various provident funds are summarized in the table given below<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-26372\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2023\/07\/PF.jpg\" alt=\"\" width=\"1280\" height=\"1032\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2023\/07\/PF.jpg 1280w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2023\/07\/PF-300x242.jpg 300w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2023\/07\/PF-1024x826.jpg 1024w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2023\/07\/PF-768x619.jpg 768w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2023\/07\/PF-800x645.jpg 800w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><\/p>\n<p>More read for related blogs are:<\/p>\n<ul>\n<li><a href=\"https:\/\/carajput.com\/publications\/all-the-provision-of-taxation-of-income-from-capital-gains.pdf\">All about the Income taxation on capital gain<\/a><\/li>\n<li><a href=\"https:\/\/carajput.com\/archives\/summary-of-provision-of-capital-gains-charts-under-the-income-tax-1961.pdf\">Provision-of-capital-gains-charts<\/a><\/li>\n<li><strong><a href=\"https:\/\/carajput.com\/blog\/govt-needed-to-introduce-changes-in-nps-in-budget-2021\/\">Govt\u00a0 needed to introduce\u00a0 changes\u00a0 in NSP Budget 2021<\/a><\/strong><\/li>\n<li><a href=\"https:\/\/carajput.com\/publications\/all-the-provision-of-taxation-of-income-from-capital-gains.pdf\">All about the Income taxation on capital gain\u00a0<\/a><\/li>\n<li><a href=\"https:\/\/carajput.com\/learn\/deductions-under-section-80ccd-of-income-tax-act.html\">Deduction u\/s 80CCD of Income Tax Act, 1961<\/a><\/li>\n<li><strong><a href=\"https:\/\/carajput.com\/publications\/all-the-provision-of-taxation-of-income-from-capital-gains.pdf\">All about the Income taxation on capital gain\u00a0<\/a><\/strong><\/li>\n<li><strong><a href=\"https:\/\/carajput.com\/blog\/delay-in-the-deposit-of-employer-provident-fund-during-lock-down-will-not-levy-any-penalty\/\">Delay in the deposit of Employer provident fund during the lockdown<\/a><\/strong><\/li>\n<li><a href=\"https:\/\/carajput.com\/blog\/get-aware-for-penalty-of-section-234f-for-late-filing-of-itr\/\"><strong>Aware of the penalty of Section-234f for late filing of ITR<\/strong><\/a><\/li>\n<\/ul>\n<p>For query or help, contact: <a href=\"mailto:singh@carajput.com\">singh@carajput.com<\/a>\u00a0or call at \u00a09555555480<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Overview on ESOP&#8217;s Taxation In India What&#8217;s the ESOP? ESOP or Employee Stock Option Plan \u2013 also referred to as Employee Stock Ownership Plans in India \u2013 is a scheme by which a company allows its employees to purchase shares of the company. In some cases, a foreign holding company offers such an option to &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[3549,3547,9689,9690],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/601"}],"collection":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/comments?post=601"}],"version-history":[{"count":5,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/601\/revisions"}],"predecessor-version":[{"id":26376,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/601\/revisions\/26376"}],"wp:attachment":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/media?parent=601"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/categories?post=601"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/tags?post=601"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}