Taxation of Shares held under Employee Stock Option Plan- ESOP

 

1. What is ESOP?

Well, ESOP stand for Employee Stock Option Plan, this is very smart technique to keep employee motivated and to keep association with that employee for long term, Companies provide option to buy the Share at a certain prices, which will be less than the Market Value which employee can exercised after certain period of working in the company as per terms & conditions. 

2. How ESOP in the hands of Employees are taxed in India?

    a. Taxable Event :- ESOP is taxable when employee exercised his option (Sale or purchase). Treated as Capital Gain. 

    b. Period of Holding : Count from the date of Allotment .....to......Date of Sale of Shares

    c. Cost of Acquisition : Cost of Acquisition will be - FMV as computed for determining the perquisite 

        u/s 17(2) (vi) (the employee may find it in their Form 16). 

    d. LTCG  or STCG- How to determined. 

                        >>>>>  If Shares are Listed in India                                 

                         STCG will be if  Holding period =<  12 months 

                         LTCG will be if  Holding period  >  12 months 

                         >>>>>If Shares are not Listed in India

                        STCG will be if  Holding period =<  24 months 

                         LTCG will be if  Holding period  >  24 months 

3. Where should we report in INCOME TAX RETURN (ITR)?

    As per my view it should be reported under CG-Part B9 if it is Long term also report under Schedule FA if held foreign companies shares.

Please note  if shares are listed outside India say USA , follow DTAA (Article 13) to determine the Tax liabilities.  

Disclaimer 

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