FBT on ESOPs

This query is : Resolved

Rohit (Querist)
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11 October 2007 Please tell whether Application of FBT on ESOPs has been done or not and how the valuation shall be done.Please provide Material (notification etc.) if possible..

CMA Gul S

CMA Gul S (Expert)
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12 October 2007 The Employees' Stock Option Plan (ESOP) has been brought under the Fringe Benefit Tax in the Budget 2007-08.

The value of the fringe benefit will be determined in accordance with a prescribed method on the date of exercise of the option.

Expenditure on free samples and displays has been excluded from the scope of FBT.

Dividend distribution tax for companies has been raised from 12.5 per cent to 15 per cent. In the case of dividends distributed by money market mutual funds and liquid mutual funds, tax on dividends paid has been raised to 25 per cent for all investors.

Minimum Alternate Tax (MAT) has been extended to income in respect of which deduction is claimed by companies under Section 10A & 10B of the Income Tax Act. Deduction under section 36(1) (viii) to be restricted to 20% of profits each year.

This is Paid by the employers and not the employee's

Vijay Kumar

Vijay Kumar (Expert)
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12 October 2007 ESOP is subject to FBT. The method of determination of the fair market value is yet to be finalised. The finance ministry press note dated 12th Sept 07 is reproduced below:
PRESS NOTE:- EXTENSION OF DUE DATE OF PAYMENT OF THE FIRST AND SECOND INSTALLMENT OF ADVANCE FBT ON ESOPS
20:18 IST
By virtue of the provision of clause (d) of sub-section (1) section 115 WB, introduced by Finance Act, 2007, an employer is liable to pay Fringe Benefit Tax on any consideration for employment provided by way of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by such employer free of cost or at concessional rate to his employees. The value of the fringe benefit is determined as the fair market value of the specified security or sweat equity share on the date on which the option vests with the employee as reduced by the amount actually paid, by or recovered from the employee in respect of such security or shares. The fair market value for this purpose is to be determined in accordance with the method prescribed by the Board. Since the method for determination of the fair market value was yet to be prescribed, the Central Board of Direct Taxes (CBDT) had earlier extended the date of payment of first installment of Fringe Benefit Tax, which was to be paid on or before June 15, 2007, in respect of transfer or allotment of specified security or sweat equity shares to its employees, to 15th of September, 2007 (the date of second installment). The Central Board of Direct Taxes (CBDT) is currently in the final stage of finalizing the method for determination of the fair market value. In the meantime, the extended first installment and the second installment of advance tax in respect of fringe benefit tax falls due on 15th of September. In the absence of a method for determination of the fair market value, it will not be possible for an employer to determine the value of these installments of advance tax related to fringe benefit tax in respect of allotment or transfer of specified security or sweat equity shares to its employees. In order to mitigate this hardship, the CBDT has decided that the first installment of Fringe Benefit Tax, which was to be paid on or before June 15, 2007, and the second installment of Fringe Benefit Tax, which is to be paid on or before September 15, 2007, in respect of transfer or allotment of specified security or sweat equity shares to its employees, may be paid on or before the 15th of December, 2007 (the date of third installment). MINISTRY OF FINANCE NEW DELHI SEPTEMBER 12, 2007/BHADRAPADA 21, 1929 BSC/NNK/GK

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