Sandeep Bhatnagar
in Tax and Accounting Law
Asked August 05, 2017

Calculation of income tax on earning from ESOPs

  • 1 Answer
  • 344 Views

Company has allocated me ESOPS @Rs 35.00 in the year 2009 at that time the company was not listed. However the vesting period was August 2010 or till such time company are listed on any stock exchange. Now in 2017 company is being listed @Rs 500.00 after paying dividend for the last 4 years. My submission is on what amount I have to pay the tax (difference 500-35= 465.00 OR As per my income slab which falls in the financial year). Kindly support me in getting a solution to it.

Answer 1

Hi,

In this case, ESOP would be taxable in the hands of an employee that is you in accordance with the amended provisions of Section 17(2)(vi) and 49(2AA) of the Income Tax Act 1961.​  

At the time of exercise – as a perquisite.

It will be treated as a prerequisite and will be taxable under the head Income from Salaries. you shall be liable to pay tax only at the time of exercise of options which shall be calculated and paid on the amount of difference between the Fair Market Value on the date of exercise and the Exercise Price, and such amount shall be taxed as a perquisite under Section 17 of the Income Tax Act 1961 in the hands of the employee (you). 

 

At the time of sale by employee – as a capital gain. 

You shall be liable to pay tax under Income from Capital Gains at the time of transfer of shares under Section 49 of the Income Tax Act 1961. The tax shall be calculated on the amount of difference between the Fair Market Value of the shares at the time of transfer and the Price at which the shares were acquired.

Regards,

Jayant Garg

Agree Comment 0 Agrees about 4 years ago

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