ESOP & RSU Taxation in India Demystifying Employee Stock Options

In this informative session, we will delve into the taxability of Employee Stock Ownership Plans (ESOPs) and Restricted Stock Units (RSUs) in India. Understanding the taxation of ESOPs is crucial for employers planning to implement an ESOP scheme. There are two instances of taxation for ESOPs:

Taxation at the time of exercising ESOP:
When an employee exercises their ESOP option, the difference between the Fair Market Value (FMV) on the exercise date and the exercise price is considered a perquisite under the income head 'Salary.' This amount is taxable, and the employer needs to deduct TDS on the salary income. For listed shares, the FMV is determined as the average of the opening and closing prices of the share on the exercise date, and for unlisted shares, it is determined by a merchant banker.

Amendment by Finance Act, 2020 - Tax Deferred on ESOP for eligible startups under sec 80-IAC:
Eligible startups and their employees have been provided with a concession for withholding taxes on ESOPs. Employers can defer TDS deduction on the perquisite amount until the occurrence of the following events, whichever is earlier:

Expiry of 5 years from the year of ESOP allotment
Date of sale of ESOP by the employee
Date of termination of employment
Taxation at the time of selling ESOP shares:
Once ESOPs are exercised, they convert into normal shares and are taxed as per the Income Tax Act, under Capital Gains. If an employee sells these shares at a price higher than the FMV on the exercise date, they would be liable for capital gains tax.
Join us for this comprehensive discussion on ESOP and RSU taxation, and gain valuable insights for your financial planning!

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