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Esop taxbility and when to show it as perquisite in employee salary?

siva andhavarapu (ca final) (388 Points)

22 July 2018

hai

In form16,employer showed ESOP as perquisite in the first year of vesting itself and tax was deducted for Esop also.I didint understand even in the vesting period itself why the employer has to show it as perquisite.Only on the excersing of esop,the employee will get benefit.If the option lapse then no benefit will be their for employee.So how the employer can deduct tax on it.Is there any specific proviison to do so?pls reply...urgent..

thankyou in advance

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5 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160342 Points)
Replied 22 July 2018

What are the tax implications on ESOPs?

– When the options are given by the company, there is no tax.

– When the options get vested, there is no tax.

– When the employee exercises his option of buying the shares, the difference between the market value and exercise value is treated as perquisite and is taxable as per the tax bracket that the employee falls in.

– When the employee sells the shares, the profit is treated as capital gains. If the shares sold within one year, 15% capital gains tax has to be paid just like in the usual purchase and sale of shares. If the stock is sold after 1 year, there is no tax as it is considered as long-term.

– If the employee has ESOPs of a company that is listed abroad, and sells the shares, short-term capital gains is added to income and one has to pay tax as per the tax slab that he/she falls into.

– If the capital gains are long-term, 10% tax has to be paid without indexation benefit or 20% tax has to be paid with indexation benefit.

Read more at ::: esops-benefits-tips-taxation-calculator

siva andhavarapu (ca final) (388 Points)
Replied 23 July 2018

TQ SO MUCH SIR.IN ONE OF THE CASE IN VESTING PERIOD ITSELF EMPLOYER SHOWED IT AS PERQUISITE AND DEDUCTED TAX ON IT.SO HOW TO PROCEED FURTHER IN SUCH CASE?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160342 Points)
Replied 23 July 2018

If TDS already deducted, better to treat is as option of buying ESOP........ It will save the same amount at the time of exercise..... Otherwise you may carry forward the TDS amount along with tax liability. (but query may be raised)