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
Where the share is listed on more than one recognized stock exchanges
Where there is no trading in the share on any recognized exchange, Fair Market Value shall be
In case where the company is not listed on a recognized stock exchange or specified security not being an equity share