Tax treatment of esop in case of acquisiton of employer co.
This query is : Resolved
Nupur Sharma
(Querist)
15 November 2014
Hi All,
A client of mine was working with a company which granted its employees some shares in in ESOP scheme. While some options vested in him during the year, some did not. He did not exercise any right to buy the shares.
The employer company was taken over buy another Company which paid cash consideration for vested options and the unvested part was converted into shares of the new Company.
The client (employee) received some amount in 2011 and some in 2014 (this was kept in escrow account).
My query is that how will capital gains be taxed in the hands of this employee client? Since he did not exercise any right to buy the options, will there be any capital gains here? He had taken the proceeds that he received in 2011 in his return for that year itself.
Should all the income be booked in 2011 when cash consideration was paid or should it be taxed as and when proceeds are received from Escrow account?
This is a very complex query for me. I will appreciate if someone could advise me...
Thanks in advance
A client of mine was working with a company which granted its employees some shares in in ESOP scheme. While some options vested in him during the year, some did not. He did not exercise any right to buy the shares.
The employer company was taken over buy another Company which paid cash consideration for vested options and the unvested part was converted into shares of the new Company.
The client (employee) received some amount in 2011 and some in 2014 (this was kept in escrow account).
My query is that how will capital gains be taxed in the hands of this employee client? Since he did not exercise any right to buy the options, will there be any capital gains here? He had taken the proceeds that he received in 2011 in his return for that year itself.
Should all the income be booked in 2011 when cash consideration was paid or should it be taxed as and when proceeds are received from Escrow account?
This is a very complex query for me. I will appreciate if someone could advise me...
Thanks in advance
Nikhil Kaushik
(Expert)
16 November 2014
why there will be capital gains? the difference between FMV and grant price is taxed on allotment of shares. the difference is taxed as part of salary, not capital gains. So as and when you received cash, it is included in salary.
the shares so issued, as and when sold shall attract capital gains.
the shares so issued, as and when sold shall attract capital gains.
Nikhil Kaushik
(Expert)
16 November 2014
why there will be capital gains? the difference between FMV and grant price is taxed on allotment of shares. the difference is taxed as part of salary, not capital gains. So as and when you received cash, it is included in salary.
the shares so issued, as and when sold shall attract capital gains.
the shares so issued, as and when sold shall attract capital gains.
Nupur Sharma
(Querist)
16 November 2014
Hi Nikhil,
Thanks for your vital inputs. You are right that there is no sale of shares yet and hence question of capital gains does not arise. The tax treatment that you have advised is the general rule that the difference between FMV and grant price be treated as perks and added to the salary.
My query is that should this amount be taxed as and when it is received? Partial amount was received in 2011 and part amount has been received now in 2014-15. Are you sure about this?
Thanks for your vital inputs. You are right that there is no sale of shares yet and hence question of capital gains does not arise. The tax treatment that you have advised is the general rule that the difference between FMV and grant price be treated as perks and added to the salary.
My query is that should this amount be taxed as and when it is received? Partial amount was received in 2011 and part amount has been received now in 2014-15. Are you sure about this?
Nikhil Kaushik
(Expert)
16 November 2014
generally no amount is received as you are just allotted shares.
Ideally whatever cash you received should have been offered to tax in 2011 when the options were vested. But if you have not done so, then offer what you received in 2014 in the year of receipt .
Ideally whatever cash you received should have been offered to tax in 2011 when the options were vested. But if you have not done so, then offer what you received in 2014 in the year of receipt .
Message likes :
1 times
Nikhil Kaushik
(Expert)
16 November 2014
generally no amount is received as you are just allotted shares.
Ideally whatever cash you received should have been offered to tax in 2011 when the options were vested. But if you have not done so, then offer what you received in 2014 in the year of receipt .
Ideally whatever cash you received should have been offered to tax in 2011 when the options were vested. But if you have not done so, then offer what you received in 2014 in the year of receipt .
Message likes :
1 times
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Nursery business
- Tax on Amount transferred in HUF Account
- GST REFUND ISSUE ON PURCHASE OF PLANT AND MACHINERY
- TDS on Dashcam rent and allied services
- Condonation Request sec 119(2) b -Enhancement Limit of Leave Exemption prior to AY 2023
- Intimation under section 245
- ETDS return q4 25-26
- Section 269ST applicability for capital introduced by partner to his partnership firm
- HOW TO ADJUST CREDIT NOTE AMOUNT ?
- Import Order Cancelled.
- Working on Gold wastage during Melting of old gold jewellery
- WRONG GSTR7 ENTRIES ACCEPTED ERRONEOUSLY
- Expert Help Required for TDS Refund 100000 Through TRACES – AY 2022–23
- IMPORT PURCHASE ENTRY PASSED IN BOOKS OF ACCOUNT
- FAST DS 26 Undisclosed Foreign Asset Disclosure Scheme 2026
- Regime change
- Tally: Imported bank entries do not show up in manual reconciliation
- Sales of goods of amount Rs97 lakhs to a party
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
