Where the shares are held for a period less than or equal to 12 months, the resulting gain from the sale of such shares is short term capital gain. Therefore, as per the provisions of Section 111A of the Income Tax Act, 1961, they are to be taxed at a concessional rate of 15%.

Is ESOP expense tax-deductible?

High Court confirms discount on options granted under an ESOP is deductible. India’s Karnataka High Court on 11 November 2020 issued its decision that the discount on the issue of options under an employee stock option plan (ESOP) is a tax-deductible business expense.

How is perquisite tax calculated on ESOPs?

ESOPs would be taxed as perquisite, the value of which would be (on date of allotment) = (FMV per share – Exercise price per share) x number of shares allotted. The amount calculated above as perquisite value of ESOP i.e. Rs. 4,00,000 shall form part of X’s salary and be taxable in the year of allotment of such shares.

Is TDS applicable on ESOP?

Budget 2020 amendment – From the FY 2020-21, an employee receiving ESOPs from an eligible start-up need not pay tax in the year of exercising the option. The TDS on the ‘perquisite’ stands deferred to earlier of the following events: Date of sale of the ESOPs by the employee. Date of termination of employment.

Can a loss making company issue ESOP?

As per Section 62 (1) (b) of the Act, an unlisted private limited company can issue further shares to employees under a scheme of Employees’ Stock Option (“ESOPs”), pursuant to a special resolution. Under the said Rules, ESOPs can be issued only to the “employees” of an unlisted private limited company.

Can ESOP be issued at discount?

The shares of the companies are given to the employees at discounted rates. Any company can issue ESOP. Thus, ESOP is a scheme where a company proposes to increase its subscribed share capital by issuing further shares to its employees at a predetermined rate.

How is ESOP expense calculated?

Exercise Price: The amount to be paid by an employee at the time of Exercise of his option. This price is determined at the time of grant and remains constant over the term of the option….ESOP Accounting and Taxability.