COMPANIES hoping to escape the fringe benefit tax (FBT) on employee
stock option plans (Esop) by allotting shares to their employees ahead
of the government notification are in for a rude shock. The tax will be
applicable from April 1, 2007, and, therefore, companies that have
allotted shares under the head to employees after March 31, 2007, will
be liable to pay the tax.
However, if the allotment was carried out before April 1, the companies
manage to escape the tax. A host of companies — including Bharti
Airtel, Moser Baer, Ranbaxy Laboratories, IL&FS Investments and
Astra Microwave Products — have allotted shares to employees against
Esops after March 31. However, some companies have been smart and timed
the allotment of shares well before April 1, 2007.
After the
passage of Finance Bill, 2007, the provision with regard to levy of FBT
on Esops will come into effect from April 1, 2007, an official said.
Although the government will issue a circular to give the guidelines on
valuations after that, the provision will come into effect from that
date itself.
The government is likely to come out with a
circular to give guidelines to field formations to levy FBT on Esops.
The valuation norms in case of listed companies will be based on Sebi
rules while in the case of unlisted companies, the Central Board of
Direct Taxes may give a separate set of rules.
In a typical
Esop, employees are first given the options that vest with the employee
for a certain period. After the period is over, the employee can
exercise the option and acquire shares against it. He/she can then sell
or hold the shares. The employee, however, cannot sell or transfer the
options during the vesting period.
Most companies allotted shares against the options given to their employees before March 31, 2007, to escape the FBT.
CAclubindia
