New Delhi: The government will soon issue guidelines on determining fair market value of stock options given by companies to their employees for calculating fringe benefit tax, Finance Minister P Chidambaram said on 17 July 2007.
“Guidelines (on fair market value) would be issued shortly,” he told reporters after a conference of income-tax chief commissioners here, denying there was any ambiguity about taxing Employee Stock Options (ESOPs).
Chidambaram had earlier said FBT on ESOPs would be calculated at the time of vesting the options to the employees and not at the time of allotment as was originally proposed in the Budget.
In the Budget for FY2007-08, he had proposed that the fair market value of the fringe benefit would be determined in accordance with a prescribed method, on the date of exercise of the option.
However, this proposal was changed when the Finance Bill was passed in the Parliament. The fair market value would now be determined when the company entitles a employee to get ESOPs at any later date.
This could bring relief to employers in a rising stock market as value at the time of vesting is generally lower than the value at the time of allotment. But in a volatile or falling market, the FBT amount would increase.