- Shares are allotted/transferred on the date of exercise of the options. Exercise them now and hold them for more than two years (if possible) so that it can be treated as long term capital gain. Long term capital gain attracts concessional tax rate of 20%. If shares would be sold out before holding for more than two years then short term capital gain would arise and chargeable to tax at slab rates.
- In case of ESOPs, tax liability arises at two different points of time. One at the time of exercising of the option and second at the time of sale of the shares.
- At the time of exercising of the option, it would be taxable as perquisites under the head Income from Salary. Value of perquisites would be the difference between Fair market value of the shares and amount paid you for exercising the option. In case of unquoted shares, Fair market value shall be such value determined by a merchant banker on the specified date. Specified date should not being a date which is more than 180 days earlier than the date of exercise of the option.
- At the time of sale of such shares, capital gain would be taxable under the head Income from Capital Gain. Capital Gain would be taxable in the year of transfer of shares. Sale consideration would be FMV of such shares and cost of acquisition would be FMV of such shares on the date of exercise of the option.
- TDS/WHT would be deducted by the employer company on the perquisites for which you can claim foreign tax credit under double taxation agreement.
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