Stock options allotted by subsidiary.

Hi Arijit,

This is an interesting and important question about taxation and disclosure of stock options allotted by a subsidiary/foreign parent company, especially for an eligible start-up employee.

Here’s a clear breakdown for Mr. A’s scenario:

1. Nature of Stock Options / Perquisites

Stock options allotted by employer (even if the parent company is foreign and listed abroad) are considered perquisites under the Income Tax Act (Section 17(2)).
The fair market value of shares allotted on the date of exercise is taxable as salary income.
If the shares belong to a foreign company, valuation and disclosure may be more complex, but the principle remains the same.

2. Disclosure Requirements

In Salary Income:
Mr. A should disclose the value of stock options received as perquisites under salary income in the ITR form.
Additional Disclosure:
Since the shares are allotted by a foreign parent company, Mr. A needs to:
- Disclose the details of foreign assets (in this case, foreign shares) in the Schedule FA (Foreign Assets and Income) of the Income Tax Return.
- The market value or fair value of shares on the date of allotment should be mentioned.
Reporting of Income from Sale of Shares (if applicable):
If shares are sold later, capital gains must be reported with details of cost and sale price.

3. Which ITR to File?

Since Mr. A’s income includes salary + interest from PPF (which is exempt), and perquisites from stock options, he should file ITR-1 or ITR-2.
Note:
ITR-1 (Sahaj) does not allow disclosure of foreign assets/income.
Hence, ITR-2 is appropriate because it has Schedule FA for reporting foreign assets.

4. Summary for Mr. A:

Query	Answer
Disclosure of stock options	Yes, as perquisites under salary income
Additional disclosure	Yes, disclose foreign shares in Schedule FA
ITR to file	ITR-2 (due to foreign asset disclosure)
Income includes	Salary (incl. perquisites), PPF interest

Additional Points:

If the stock option is from a start-up eligible under Section 80-IAC, some tax benefits may apply on ESOPs under certain conditions (like specified lock-in). But this is generally for Indian startups.
Since the parent is foreign, those benefits may not apply directly, so tax on perquisite is as per normal rules.
Mr. A should also consult a tax advisor for accurate valuation and compliance with Foreign Assets Reportingunder the Income Tax Act.