Valuation of perquisites in respect of employee stock option (ESOP) for the financial year 2009-2010

The valuation of shares and specified securities in relation to employee stock option have been brought under Rule 3 itself, and Rules 40C and 40D of the Income-tax Rules will no longer be apply. Consistent with the change in law as regards the point of time (exercise) when such liability has to be determined, the rule now prescribes that the relevant date will be the exercise date (as against the date of vesting considered in Rule 40C and 40D). All other aspects in relation to valuation of stock options in Rule 40C and 40D remain the same even after the amendment.

Rule for Valuation of Equity  stock  options  scheme (ESOP)

Fair Market Value (See note below) of the specified securities or sweat Equity Share on the date on which the option is exercised by the employee

Less: Amount, if any recovered from the employee for such benefit or amenity.

Note:-For determining the fair market value, Rule 3(8) prescribes method for determining the fair market value of specified security or Sweat Equity Share on the date on which the option is exercised by the employee is as follows:

In case where the company is listed on the recognized stock exchange

• Fair Market shall be average of the opening price and closing price of the share on the date of exercising option on the stock exchange.

Where the share is listed on more than one recognized stock exchanges

• Fair Market shall be average of the opening price and closing price of the share on the date of exercising option on the recognized stock exchange which records highest volume of trading in the shares.

Where there is no trading in the share on any recognized exchange, Fair Market Value shall be

• Fair Market value would be closing price of the share on the date closest to the date of exercising of the option and immediately preceding date; or
• Closing price of share on the date of exercising option on a recognized stock exchange which records highest volume of trading on the date closest to the date of exercising of the option

In case where the company is not listed on a recognized stock exchange or specified security not being an equity share

• Fair market value would be value of the share in company as determined by a merchant banker on the date of exercising option