Old wine in a new bottle

Employee stock benefit schemes taxation

Santhosh S


Posted: Monday, Mar 08, 2010 at 2214 hrs IST

Updated: Monday, Mar 08, 2010 at 2214 hrs IST

Has your employer made available stock benefit schemes such as
Employees Stock Option Plan(ESOP), Employees Stock Purchase Plan
(ESPP), Restricted Stock Units (RSU) to you? In that case, it may
interest you to know that there are some recent amendments in the
taxation rules, which will henceforth determine the tax payable by you
for enjoying these benefits.

Taxation of stock benefits upto March 31 2009

The benefits arising to you due to allotment or
transfer of stocks (anytime between 1st April, 2007 and 31st March,
2009) were subject to Fringe Benefits Tax (FBT). The Fair Market Value
(FMV) at the time of vesting minus the amount paid by you was
considered a fringe benefit. The company was responsible to pay FBT
(though it could be recovered from you). On the sale of the shares, the
sale value minus the FMV was considered the capital gain.

The new rules [Rule 3(8) of the Income Tax Rules] were notified in December 2009, with retrospective effect from April1, 2009.

Incidence of taxability under new rules

Exercise of ESOP or vesting of RSU or allotment
under ESPP will now trigger taxation in your hands as a “perquisite”.
Separately, you will also be subject to capital gains tax when you sell
the underlying shares/units etc.

Valuation of the perk

The value of perquisite would be the