Employees Stock Option To Be Taxed Only On Sale

The government yesterday announced that the employees' stock option scheme (ESOP) would be taxed only at the time of sale.

Finance minister Yashwant Sinha announced that the shares allotted to employees under ESOP would be taxed only at the time of sale. This has been one of the demands of the Indian information technology industry.

Until now, ESOPs have been taxed twice _ at the time of allotment as well as at the time of sale.

According to the earlier norms, an employee given ESOP would pay about 33 per cent as principle income tax at the time of being issued the shares by the company. Moreover, the employee who wished to exercise his options in the following year would pay 10 per cent as capital gains tax.

 

Now, with the change in the policy, the employee will have to pay only about 10 per cent as the capital gain tax at the time of exercising the options.

Moving the Finance Bill for consideration in the Lok Sabha, Sinha announced that shares received by employees under ESOP would not be regarded as perquisites and would be taxed only as capital gains at the time of sale.

Welcoming the move Dewang Mehta, president, National Association of Software and Services Companies said, "The most fundamental reasoning behind ESOP is to retain manpower, decrease brain drain and create wealth for individuals. This announcement by the finance minister will provide a boost to manpower development in the country." Nasscom has been lobbying for this for long.

Sharad Talwar, general manager (marketing), HCL infosystems said, "This move by the government is an encouraging step. The employee, who has been taxed twice will now be paying the tax only at the time of sale. There will be tremendous saving by them."

According to Talwar, this step by the government would also stop panic sale of shares by employees just to recover the outflow of money due to taxes at the time of allotment of shares and more so as the markets in recent times have gone southward.

P Rajendran, chief operating officer, NIIT said, "People are the real assets that provide a competitive edge to an IT organisation. The ESOPs will now work to the advantage of both the individuals and the organisations in retaining that competitive edge and sustaining it over the long period."