Taxability of ESOP - urgent
This query is : Open
02 November 2009
A Company allotted Restricted Stock Units (Under ESOP) to its employees, with a lock in period of 5 years. Now that FBT is abolished and these stock units are to be treated as remuneration and is to be taxed in the hands of the employees, the question arises at what point of time does the taxability of these units arise,
a) On the vesting of the options with the Employees or
b) On the ultimate delivery of the shares to the employees after lock in period.
There was no benefit and the value of the benefit was unascertainable at the time the options were vested/exercised.
In CIT vs. Infosys Technologies Ltd. (2007) it was decided that since the benefit of the options which arose on the date of vesting/exercising was only a notional benefit & during the lock in period the possession of the shares remained with the employer & it was not possible for the employee to know the future value of the shares allotted to him on the day he exercises option, this could not be treated as a benefit & TDS need not be deducted.
But this is a case law held before the FBT regime came into force.
I would like to know if I can keep this case law as the basis & postpone my tax liability or is there another dimension to this. Kindly share your valuable opinion.
a) On the vesting of the options with the Employees or
b) On the ultimate delivery of the shares to the employees after lock in period.
There was no benefit and the value of the benefit was unascertainable at the time the options were vested/exercised.
In CIT vs. Infosys Technologies Ltd. (2007) it was decided that since the benefit of the options which arose on the date of vesting/exercising was only a notional benefit & during the lock in period the possession of the shares remained with the employer & it was not possible for the employee to know the future value of the shares allotted to him on the day he exercises option, this could not be treated as a benefit & TDS need not be deducted.
But this is a case law held before the FBT regime came into force.
I would like to know if I can keep this case law as the basis & postpone my tax liability or is there another dimension to this. Kindly share your valuable opinion.
04 November 2009
In my opinion, the base of the judgement is to test the certainity of the Income/benefit in the hands of the employees and the same was not ascertainable at the time of option vested/excercised. It is therefore, TDS could not be applied on uncertained benefit.
The above facts do not effeted by the inapplicabilty of FBT law currently, and hence, out of purview as regard to above discussion.
The above facts do not effeted by the inapplicabilty of FBT law currently, and hence, out of purview as regard to above discussion.
04 November 2009
Thank you verry much Kishan
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