This could come as a
dampener to all those companies that rushed their employee stock option plan
(Esop) offers before March 31 to avoid fringe benefit tax (FBT). The finance
ministry has clarified that FBT will apply on all Esop offers where the physical
transfer of shares was completed after March 31 though the employee may have
exercised the option in that month itself.
Companies that offered
Esops to employees in March include Satyam Computer Services, Geometric
Software, Dabur Pharma, i-flex Solutions, Hexaware Technologies, Moser Baer,
HDFC and NIIT, among others. Some of them may have failed to conclude the
transfer of shares by March 31.
A case in point is HDFC, where the
stock exchange was informed about the Esop offer only on March 15 and 29. Tax
consultants say companies usually take about one to two weeks to transfer shares
to employees once the option is exercised.
“In cases where
trusts are custodian of shares, share transfer may take some time, and
companies, if they have allotted shares close to the end of March, may find
themselves in the FBT loop.
However, a large number of companies,
especially in the IT sector, conduct the whole process of allotment and transfer
of shares under Esop scheme online. These companies will not fall under the FBT
ambit if the whole transaction has been completed within the March 31
deadline,” said CA firm BSR & Co director Sandip
Chaufla.
The finance ministry’s clarification thus means that
all those companies that failed to physically transfer shares to their employees
before March 31 will now have to pay FBT on the offers. Incidentally, the Budget
has allowed employers to recover these tax liabilities from the employees.
“FBT will be levied at the time of allotment or transfer of
share under Esops. Thus, in all those cases where shares under Esops were
transferred after April 1 even though option was exercised before March 31,
2007, companies will have to bear FBT,” a government source
said.
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