The Federation of Indian Chambers of Commerce and Industry has asked the finance ministry to amend taxation rules for ESOPs (Employee Stock Option Plans), since such provisions lead to increased tax burden for employees. In a letter to the finance ministry, the industry body has said that ESOP taxation rules should be amended according to guidelines issued by the Securities and Exchange Board of India (SEBI).
ESOPs are shares doled out by a company (employer) to its employees as a kind of remuneration and is used by companies to retain talent.
A tax is imposed on ESOPs on the basis of fair market value of the specified security on the date when the option is exercised by the assessee, reduced by the amount paid by him in respect of such security.
FICCI has argued that SEBI guidelines provide the fair market value of a stock option as the market price prevalent on the grant date and not subsequently adjusted for changes in the price of the underlying stock.
FICCI has suggested that the fair market value and the discount issued should be in conformity with SEBI guidelines and employees should be taxed only on the concession actually given by the employer at the time of grant and not on notional perquisite value.
