There are two stages of taxation for ESOP

Amount received from the employer even after cessation of employment is taxable

Parizad Sirwalla
First Published21 Aug 2013, 06:49 PM IST
Think Stock<br />
Think Stock

I left a company, where employees were eligible for the employee stock option plan (ESOP), in May 2011. Since I am no longer an employee with the company, do I need to pay perquisite tax? Under what head can I claim refund of perquisite tax deducted by the company? What should be the purchase price of the shares and my cost price?

—Arun Agrawal

Any amount received by an individual from the employer even after cessation of his employment is taxable as “profit in lieu of salary”. Accordingly, the benefits/amount received by you from the company after termination of employment in May 2011 will be taxable under the head salary.

We have presumed that vesting of stock options has happened before you left the company in May 2011 under ESOP. We understand that you exercise the stock options granted and vested to you under ESOP and, accordingly, the shares of the company were allotted to you. Hence, there will be two stages of taxation in respect of shares allotted to employees under ESOP. The first point is when the shares are allotted by the company; the same will be taxed as salary/perquisite.

The difference between the fair market value (FMV) of the shares on the date of exercise and the grant price paid by you, if any, should be taxable as perquisite/salary on the date of allotment of shares. Though, you left the company in May 2011, the shares of the company were allotted to you under ESOP when you were an employee. Therefore, the difference between the FMV of the shares and grant price paid by you shall be taxable as perquisite/salary. Accordingly, the employer company has to compute and deduct the tax on perquisite/salary resulting from allotment of shares under ESOP. The income and the perquisite tax deducted by the company thereon would be reflected in your form 16 and you should report the same as part of salary in your personal tax return.

Further, when you sell the shares subsequently, the gains will be taxed as capital gains. The capital gains will have to be computed as the difference between the sale proceeds and FMV of the shares that was considered by the employer while computing the perquisite value including any expenditure incurred wholly in connection with the sale.

The capital gains tax implications would depend upon the period of holding of shares from the allotment date and whether security transaction tax (STT) has been paid.

Queries and views at mintmoney@livemint.com

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess
First Published:21 Aug 2013, 06:49 PM IST
HomemoneycalculatorsThere are two stages of taxation for ESOP

Most Active Stocks

Tata Steel

166.80
03:59 PM | 15 JUL 2024
-1.9 (-1.13%)

NTPC

385.65
03:58 PM | 15 JUL 2024
8.4 (2.23%)

Bank Of Baroda

258.60
03:53 PM | 15 JUL 2024
7.85 (3.13%)

Bharat Electronics

331.25
03:55 PM | 15 JUL 2024
-2.05 (-0.62%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Indian Overseas Bank

68.33
03:41 PM | 15 JUL 2024
4.68 (7.35%)

M M T C

94.92
03:40 PM | 15 JUL 2024
6.31 (7.12%)

NLC India

297.75
03:57 PM | 15 JUL 2024
18.6 (6.66%)

IDBI Bank

91.54
03:58 PM | 15 JUL 2024
5.6 (6.52%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    74,771.00290.00
    Chennai
    73,827.00-145.00
    Delhi
    73,972.00-799.00
    Kolkata
    74,045.0073.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.75/L-0.01
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsCibilPremiumMint Shorts