Quick Summary
ESOPs have been a significant component of the compensation for the employees of start-ups, as it allows the founders and start-ups to employ highly talented employees at a relatively low salary amount with balance being made up via ESOPs. Currently ESOPs are taxed as perquisites under section 17(2) of the Act read with Rule 3(8)(iii) of the Rules. The taxation of ESOPs is split into two components: i. Tax on perquisite as income from salary at the time of exercise. ii. Tax on income fr
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FAQ :
ESOPs (Employee Stock Options) are a key part of compensation for startup employees, enabling companies to attract talent with lower salaries by offering potential future equity.
Currently, tax on ESOPs is split into two parts: tax on the perquisite value when the option is exercised, and capital gains tax when the shares are sold.
The proposed change allows eligible startups and their employees to defer the tax payment on the perquisite value of ESOPs.
This tax deferral applies to employees of eligible startups as referred to in section 80-IAC of the Act.
Tax can now be paid within fourteen days of the earliest of: 48 months after the end of the relevant assessment year, the date of sale of the shares, or the date the employee ceases to be employed.
This amendment takes effect from 1st April 2020.
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