FBT on ESOP

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Krishna Kumar

Krishna Kumar (Querist)
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29 July 2008 How do we calculate FBT on ESOP's?

CA Hemant T Dewani

CA Hemant T Dewani (Expert)
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29 July 2008 100% of fair market value on the date on which the option vests with the employee as reduced by, or recovered from the employee in respect of such work security or shares shall be the value of Fringe Benefits chargeable to tax under this clause of Section 115WB (1)(d

A company ‘X’ grants option to its employee ‘R’ on 1st April, 2004 to apply for 100 shares of the company at a predetermined price of Rs. 50/- per share with date of vesting of the option being 1st April, 2006 and exercise period being 1st April, 2006 to 31st March, 2010.Employee ‘R’ exercises his option on 31st March, 2007 and shares are allotted/transferred to him on 3rd April, 2007. On 25th October, 2007 these shares are sold for Rs. 300/- each. On the date of vesting of the option, fair market value of the share was Rs. 90/- per share.

The tax implication of above situation will be as under:-

Since shares are allotted or transferred on or after 1st April, 2007, provision of fringe benefit tax is attracted. Fringe benefit with respect to employee ‘R’ is (Rs. 90 – Rs. 50) X 100 = Rs. 4,000/-.

Company ‘X’ will pay fringe benefit tax on Rs. 4,000/-.