Tax effect of ESOP due to removal of FBT

Hi Friend,

The FMV on the day of Vesting shall be the taken as the COA.

Since the sum upto the FMV has already been taxed in the form of perquisites in the hands of employee.

Is the shares acquired under ESOP/ESOS liable to capital gains tax even if the same has been taxed under perquisites and included in salary income in the year of such allotment?

what is the cost of acquisition in such a case ?

a. FMV of the shares as on the date of allotment

or

b. Value of perquisities taxed in the hands of employee

A correction about the above reply.

FMV is to be seen on the day of EXERCISING & not on the day VESTING.

Sec 49(2AA) -

Where the capital gain arises from the transfer of specified security or sweat equity shares referred to in sub-clause (vi) of clause (2) of section 17, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account for the purposes of the said sub-clause.

Sec 17(2)(vi) -

the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from the assessee in respect of such security or shares

Hi Friend,

Thanks for your reply.

Can u give a more simple answer, perhaps with an example. What is the amount which should be taken as sale consideration and what is the amount which should be taken as cost of acquisition?

Ok let me try......!

FMV as on Exercising Day - 100 / share

Employer recovered Rs. 20/ share from employee.

Valuation of Perquisite will be = Rs. 80/share

COA for the purpose of capital gain in case shares alloted under ESOPs are sold by the employee will be Rs. 100/share

If employee gifts the shares alloted under ESOPs then FMV on the date of "Gift" shall be sale consideration otherwise actual sale price will be the sale consideration.

Period of holding shall be reckoned fro the Date of allotment of Sahres under ESOPs

Hi friend

Let me give an example

Mr.X receives 100  shares under ESOP from his employer free of cost. His employer has included this under fringe benefits to the tune of Rs. 15000 and included the perquisite u/s 17(2) as Salary Income.  If Mr. X exercises the option and sells the shares at Rs. 120 each, then

1. what is the cost of aquisition ?

2. What is the amount of capital gains ( assuming short term)?

Cost of Acquisition will be Rs. 150/share

Shot Term Capital Loss = 150-120= 30 per share

Thanks Amir,

I have exceeded the limit of thanks for this thread.

You have made me understand the concept clearly.

Hi friends,

can you explain the tax treatment of the following

1. ESPP

2. ESOP

3. ESOS

4. RSU

thanks