Understanding the Taxability of ESOP Gains

Taxblock | Last updated: 13 September 2021

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Employee Stock Option Schemes (ESOPs) offer employees a stake in the company's profits, with tax implications arising at two key points: when the options are exercised and when the shares are sold. The tax at exercise is based on the difference between the share's fair market value and the exercise price, treated as a perquisite. When shares are sold, capital gains tax applies, calculated on the difference between the sale price and the cost basis (exercise price plus any amount paid). The holding period for shares determines whether gains are short-term or long-term, with different tax rates applying.

According to Section 2(37) of Companies Act, 2013, Employees stock option schemes is an option given to the directors, employees or officers of the company or its holding and subsidiary company, the right to purchase or benefits or subscribe for the shares of the company at the predetermined price for a future date. Therefore ESOPS are issued to motivate their current employees or directors by giving them stake in the profits of the company According to section 12(1) of Companies (Share Capit

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Taxblock

Taxblock is One stop solution to ITR, GST, U.S Tax, NRI, EXPAT, TDS, Tax Planning and many more for Individual & Business

Taxblock India Private Limited, founded in 2019, is a fintech startup located in Pune, Maharashtra. We are enrolled as an E-Return Intermediary with Income Tax Department have established an In-House team of Technology Tax Experts to build a Financial Compliance Ecosystem for Individual Corporates. Our clients cho ... Read more

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