The government will review the taxation regime of employess stock ownership plans (Esops). Esop is a compensation tool for employees and a review is underway to address the effectiveness of the instrument, reported Economic Times. The review will not be confined to startups.
The stock option is an instrument used for compensation or to retain talent in the company. The DPIIT had pushed for making Esops in startups taxable only at the time of sale.
The heart of the matter here is whether stock options should be taxed only when the employee sells them and not again at time of vesting. If an employee sells the stock option, taxation as per capital gains will be levied. If the stock option is sold during the vesting period, the perquisite value gets added to the income and tax is levied according to the prevelant slab.
The Department for Promotion of Industry and Internal Trade had sent a proposal to the finance ministry to be examined. The finance ministry was of the view that the entire framework needs to be reviewed.