hamburger
×
Digit General Insurance Logo
Powered By Digit
Insurance Products for Business Owners

Quick Claim Process

Affordable Premium

Everything You need to Know About ESOP

What Is ESOP?

What Are the Benefits of ESOP?

What Happens to ESOPs When the Company Is Listed?

How Does Tax Implication for ESOPs Work?

Now, let us check the taxation process in ESOP as discussed in the following. 

  1. The 1st level of taxation 

In this stage, ESOPs are taxed as perquisites. The value is calculated as follows.

Value on the allotment date = (FMV per share – Exercise price per share) x number of allotted shares

  • The 2nd level of taxation 

Individuals deciding to sell their shares will be liable to paying capital gain tax. The calculation will be as follows. 

Capital gains = Sale proceeds – FMV of shares at the time of share allotment

Various Stages of ESOP /Units/ Exercise Price

Rate of Tax/FMV of a Share

Tax to be Paid

Grant/100/100

Nil/120

Nil

Vesting/100/100

Nil/150

Nil

Exercise/100/100

Income tax slab rate/170

Tax = 30% x 100 shares x (₹170 - Rs 100) = ₹2100 and 3% cess

Sale of shares if listed/20/Nil

15% on short term capital gains/250

Tax =15% x 20 shares x (₹250 - Rs170)= ₹240 and 3% cess

Sale of shares if listed/80/Nil

Exemption of long term capital gains/300

Nil, exemption of long term capital gains on listed shares is

Sale of shares if unlisted/20/Nil

Income tax slab rate/250

Tax =30% x 20 shares x (₹250 - ₹170)= ₹480 and 3% cess

Sale of shares if unlisted/20/Nil

20% tax on long term capital gains after cost indexation/300

Tax = 20% x 80 shares x (₹300 - ₹170*CII for 2016-17/CII for 2014-15) = 20% x 80 x (300 - 170*1125/1024) = ₹1811 and 3% cess

Therefore, you can observe the importance of ESOP regarding employee future and organisation expansion. It has its fair share of benefits for both employers and employees. However, several complicated rules and regulations are applicable for the plan, which organisations should decipher properly before implementing.

Frequently Asked Questions