A lot of firms made available workers inventory options or ESOPs to their staff members in lieu of pay cuts because of to covid19 pandemic. An Esop is the option which a organization delivers to the employees to order the company’s shares on a long term date at a decreased price. Staff members can exercise ESOPs soon after a lock-in period. ESOPs are fairly well-liked with startups. Staff inventory option are taxed twice. Examine on to know particulars.
ESOPs are taxed twice — 1st at the time of training the option and second at the time of promoting the allotted shares.
How are ESOPs taxed at time of allotment of shares
Difference concerning the honest market value of the shares as on the day of working out the option and the volume paid to exercise the option is taxable as per the tax bracket of the personnel. The taxable value is named ‘perquisite.’
How are ESOPs taxed at the time of promoting the shares
Difference concerning the sale value and fair market value as on the exercise date is taxable as capital gains.
If ESOPs are held for a period of considerably less than 12 thirty day period, the gains built on the mentioned shares will be dealt with a short term capital gains and will be taxed at 15%.
If ESOPs are offered after completion of a interval of 12 months, the gains on the listed shares will be handled as lengthy term capital gains. The gains above ₹1 lakh will be taxed at 10%. Gains upto ₹1 lakh are not taxable.
In situation of unlisted shares, gains created on shares held for a time period of about 24 months are treated as prolonged term capital gains and is taxed at 20% with indexation.
If holding period of unlisted shares is lesser than 24 months, the gains will be treated as short term capital gains and will be taxed as for each relevant slab rate of the employee.
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