ESOP TAXATION

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Yogesh Kumar (Querist)
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27 January 2011 Can someone guide me on the taxability of ESOP's under income tax act in the hands of employer & employee?

Also tell me the procedural aspect for the non listed company.

CS Snehal

CS Snehal (Expert)
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28 January 2011 Quantification of Tax
The tax liability will now be determined on the exercise date. Tax would be levied on the difference between the fair market value (FMV) of the shares on the date of exercise by the employee and the exercise price. The tax would be levied on this value at the individual tax
rates (plus cess).

FMV for listed companies
FMV shall be the average of the opening price and closing price of the share on the date of exercise by the employee on a recognised stock exchange where there is highest trading volume.
If there is no trading on any recognized stock exchange, then the FMV shall be the closing price of the share on a recognised stock exchange, where there is highest trading volume, on a date closest to the date of exercising of the option and immediately preceding such date.

FMV for unlisted companies
FMV shall be such value of the share in the company as determined by a merchant banker on the date of exercise of options or any date within a period of 180 days prior to the date of such exercise.
The process of getting a merchant banker certification is the same as was earlier prevalent during the FBT regime.

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