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ESOP Salary vs Capital Gain

Eswar Reddy S (CFO- at NHTF) (58213 Points)

28 August 2022

FMV - Exercise Price = Taxable under salary

FMV will be considered as cost for capital gain

On sale of shares :

Sale Consideration
( FMV on the date of sale)

- Cost (FMV on the date of exercise)
----------------
Capital Gain
-----------------

Hope this is correct.

Whether employee get tax refund on ESOPs in the year of exercise of ESOP ?

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17 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160835 Points)
Replied 28 August 2022

1. Correct.

2. Actually there would tax liability at the time of exercise of ESOP, which can be deferred till 5 years.

2 Like

Eswar Reddy S (CFO- at NHTF) (58213 Points)
Replied 28 August 2022

But company deducted huge tax under perquisites ( salary).

Can we get refund if it is deferred?

5 Like

sabyasachi mukherjee (26207 Points)
Replied 29 August 2022

Depending on the gradation of employee.

Eswar Reddy S (CFO- at NHTF) (58213 Points)
Replied 29 August 2022

Read the query again and reply

6 Like

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160835 Points)
Replied 29 August 2022

Originally posted by : Eswar Reddy S
	But company deducted huge tax under perquisites ( salary).Can we get refund if it is deferred?

Yes, if anything in excess. But there would be huge liability of tax under 'Salary'. So check form 16 and act accordingly.

2 Like

Eswar Reddy S (CFO- at NHTF) (58213 Points)
Replied 29 August 2022

There is no excess tax but it is due to exercise of ESOPS..

6 Like

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160835 Points)
Replied 29 August 2022

The TDS gets deducted based on Tax liability only. So, Huge income.... Huge TDS.... after all it need to to be adjusted against tax liability & if excess, claim refund...

1 Like

Eswar Reddy S (CFO- at NHTF) (58213 Points)
Replied 29 August 2022

But you said it can be deferred.. Any concession by deferring it and how it works ?

5 Like

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160835 Points)
Replied 30 August 2022

Yes, but it would be tax liability, even after adjusting TDS. This liability in case of eligible startups has been deferred.

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:
- Expiry of five years from the year of allotment of ESOPs
- Date of sale of the ESOPs by the employee
- Date of termination of employment

1 Like

Eswar Reddy S (CFO- at NHTF) (58213 Points)
Replied 30 August 2022

It's not start up but Listed public company.

Will your answer change ?

6 Like

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160835 Points)
Replied 30 August 2022

Yes, need to pay the balance tax, if any, in the previous year of exercising option.

Eswar Reddy S (CFO- at NHTF) (58213 Points)
Replied 30 August 2022

Company has already deducted tax and additional amount collected from employee for additional tax on ESOPs

5 Like

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160835 Points)
Replied 30 August 2022

Company has deducted TDS as per slab rate of its employee.

Now while filing ITR there can be additional tax liability over the aggregate income, or there can be refund; depends upon his/her other income declarations.

Eswar Reddy S (CFO- at NHTF) (58213 Points)
Replied 30 August 2022

Since ESOPs is part of form 16 , company has deducted additional tds . There is no additional tax liability.

There is no way for refund since the tax is rightly deducted

5 Like