Query on taxation of ESOPs

Hi,

As per Indian Income Tax Rules, Difference between Fair Market Value and the ESOP Exercise Price will be taxed under the head "Salary" as a Perquisite. Gain/Loss from the Sale of such shares will be taxed as Capital Gains subject to Exemptions and Deductions available. So, from Indian Income Tax perspective, you are liable to pay tax at two stages on ESOP - First as Salary when buying and then as Capital Gains when selling.

From UAE Perspective, you need not pay any Income Tax. However, the availability of Exemption/Refund in respect of tax on ESOPs is subject to the provisions of the DTAA between India and the UAE.

We will have to study the India-UAE DTAA in detail so as to make an opinion in this regard.

Dear Sir,

Hi,

From Indian Income Tax perspective, you have to pay tax twice if your salary is taxable in India.

First, at the time of exercising ESOP, in this case difference between fair Market Value and the ESOP Exercise Price will be taxed under the head "Salary" as a Perquisite.

Secondly at the time of sale of those ESOPs - in this case gains from the Sale of such shares will be taxed as capital gain subject to India UAE treaty.

Please feel free to call/ revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.Com

As the perquisite value of ESOP is part of your salary. If your salary is taxed in India as Indian income, even the perquisite value of ESOP will also be taxed in India only. However, I think you may not be subject to Indian Income Tax, as you are a Non Resident and the salary is earned in UAE for your services rendered in UAE. It is the responsibility of the employer to deduct tax at source in respect of salary income, if earned in India.