Esops are also taxed at allotment stage1 min read . Updated: 19 Aug 2019, 12:20 AM IST
- Stock-based compensation is taxed in two stages—first on allotment of shares and the income is classified as salary income, and the second is on sale of shares
My employer gave me non-qualified stock options three years ago but didn’t mention any perquisite value on my Form 16 in those three years and deducted no tax. But when I sold those shares, they deducted 30% plus surcharge and cess. Is that correct?
—Name withheld on request
It is not clear if the underlying shares were allotted to you under the employee stock option plan (Esop), i.e., if you received an actual share allotment three years back or only a grant of Esops to be converted into shares at a later date. Also, it is not clear whether these shares are listed. So it would be important to review the specific plan in your case. As a general rule, stock-based compensation is taxed in two stages—first on allotment of shares and the income is classified as salary income, which is subject to TDS deduction by the employer under Section 192 of the Income-tax Act. The second is on sale of shares wherein the income (if any) is classified as capital gains and you have to pay taxes (if any) on the same.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.