Taxation Aspect Under Employees Stock Option Plans (ESOPs)

Another important aspect that have a direct bearing on the issuance of Stock Options by the Companies is the taxability in the hands of Employees.Tax implications are different, both at the time of allotment of the shares pursuant to exercise of options and at the time of sale of such shares by the employees.

Ms. Mohini Varshney
Assistant Vice President
A. At the time of allotment of shares under ESOPs, the benefit which accrue are taxed as perquisite in the hands of Employees.The value of benefit is the difference between the FMV on the date of exercise and Exercise price paid by the Employees.

B. At the time of sale of such shares, taxability depends upon theholding period of the shares. The incremental gain (i.e. difference between Sale consideration and the FMV on the date of exercise) on sale of shares is considered as a capital gain in the hands of the Employee and are liable to be taxed in the following manner:

Transactions through Stock Exchange
Transactions not through Stock Exchange
  • Shares held for a period of more than 1 year (STT paid): LTCG Exempt
  • Shares held for a period of more than 1 year: LTCG to be paid @ 20%
  • Shares held for a period of not more than 1 year(STT paid): STCG to be paid @ 15%
  • Shares held for a period of not more than 1 year: Subject to applicable Slab Rates as provided under Income Tax Act.

Taxability of ESOPs is a very broad concept that need to be deliberated upon by the Company as well as the Employees at respective stages as the tax implications may vary depending upon the residential status of the employees etc.

For any professional consultation related to ESOP, feel free to contact:
Ms. Mohini Varshneya
Assistant Vice President
Corporate Professionals
+911140622231, +919971673332,
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