Clarify on Taxation of ESOPs in case of migrating employees: ICAI

Taxation of specified security or sweat equity shares allotted to employees under Employee Stock Option Plans (ESOPs) in case of migrating employees

Issue/Justification

Taxation of ESOPs creates an issue in the case of migrating employees, who move from one country to another, while performing services for the company during the period between the grant date and the allotment date of the ESOP. The domestic tax law is unsettled on the taxation of such migrating employees and does not clearly provide for such cases.

Suggestion

• During the erstwhile Fringe Benefits Tax regime, there was a specific clarification on the taxability, where the employee (who qualified as a non-resident/ not ordinary resident) was based in India only for a part of the period between grant and vesting. However, there is no specific provision in this regard under the amended ESOP taxation regime from 1 April 2009.
• The Government may look at providing clarity on the taxability of ESOP’s for such mobile employees.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)