Loss on employee stock options in india

BUSINESS houses often resort to innovative incentive policies to reward employees for their performance and, at the same time, boost their chances of long-term association with the company.

One such incentive is employee stock option plan Esop.

If Esops are exercised, the employee pays the exercise price and is allotted the shares. At that time, such an employee may sell the stock at a gain or hold on to it in hope of further price appreciation.

Many companies especially in the startup phase have now started giving Esops as this is beneficial to both sides.

How you can make the most of your employee stock options

The perquisite value is computed as the excess of the fair-market value FMV of the share on the date of exercise over the exercise price. There are specific valuation rules prescribed for listed and unlisted companies to determine the FMV.

The employer is required to withhold tax at source in respect of such a perquisite. The nature and rate of capital gains would depend upon the period of holding of shares from the allotment date.

EsoPs taxable as perk in hands of employee - The Financial Express

Further, the fact that whether security transaction tax STT has been paid on sale of such shares, is also a factor. For listed shares where the STT is paid, there would be no tax if shares are held for more than one year, but the same is taxed at For unlisted shares, the tax rate is The moot point, however, is whether we plan our investment in Esops keeping in mind the above considerations.

Most of us sell the shares immediately upon receipt to enjoy the gains and regard this money as a bonus. But the tax implications need to be factored in before utilisation of such proceeds.

As a planning tool, to optimise returns from Esops, hold them for a longer duration to characterise such gains as long-term gains. April 28, 1: International Yoga Day The Express Group The Indian Express The Financial Express Loksatta Jansatta inUth Ramnath Goenka Awards.

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