Offering ESOP, ESPP, RSUs etc to employees by Multinational Companies have became popular and common in India. Multinational Companies (MNC), Startups are offering ESOPs to Employees as a part of Salary package.
'Employee Stock Option Plan' commonly referred to as ESOPs are one of the most important tools to attract, encourage and retain Employees. Companies grants an option to its employees to acquire equity shares of the company at a future date and at predetermined price. There is no limit on quantum of ESOP to be issued to employees
There are various types of Employee Stock Options available
There are few term which you need to understand before understanding the Tax impact
Stock Option Plans involves taxation at 2 stages i.e., at the time of exercise and at the time of Sale.
For Example : Mr Krishna, Employee of MNC exercises 1000 shares @ Rs 10 per share on 03rd Feb 2021. The Fair market value of shares as on 03rd Feb 2021 is Rs 100 per share.
Here, Perquisite Value is (1000 shares *100) – (1000 shares*10) = Rs.90,000
Rs 90,000 will be added as perquisite value and taxable under the head Salaries. It will be taxed as per Mr Krishna Slab rates.
For Example: Mr Krishna sold his shares on 15th Feb 2022 @ Rs 200 per share. Then the capital gains calculation is as follows
Sale Value : 1000 shares * 200 per share = Rs 2,00,000
Purchase Value : It will be Fair market value as on date of exercise: 1000 shares* 100 per share = Rs. 1,00,000
Capital Gain is Sale Value - Purchase Value = 2,00,000 - 1,00,000 = Rs 1,00,000
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