Treatment of capital gain tax on sale of esop

Dear Parag,

As per Income Tax Act, there are two stages where income is taxable on ESOP.

Firstly when shares are allotted to employee by employer it will be taxed as perquisites which is a part of salary. Taxable amount of perquisite in this case will be difference between the FMV of the shares on the date of exercise and the exercise price paid by employee on the date of allotment.

Secondly when employee sells the shares, capital gain will be difference between the sale proceeds and FMV of the shares.

Determination of Tax Rate in different cases:

On perquisite part of ESOP flat rate of tax is not fixed as capital gain. It is included in salary and taxed after enjoying basic exemption limit of 2.5 lakhs / 3 Lakhs / 5 Lakhs as in case may be taxed accordingly.

On Capital gain part of ESOP

LTCG

If the shares are sold after holding for more than 12 months from the date of allotment, the capital gains are termed as long-term capital gain. If STT is paid on such LTCG, full exemption can be taken. In case STT is not paid, LTCG will be taxable at 20 % with benefit of indexation or 10 % without benefit of indexation.

STCG

Where the holding is not more than 12 months, the capital gains are short-term capital gains (STCG) and where STT is paid at the time of sale, tax will be applicable at 15 per cent.If STT is not paid, applicable maximum marginal tax rate would apply. Additional education cess would apply on these rates.

Regards 

Shreesh Kumar