Interviews
Do away with FBT on ESOPs: CII
03 Apr '07
4 min read
In case of unlisted shares, calculating the FMV will be complex given the absence of a public market to ascertain the market value of the shares at grant. The Black Scholes method for computation of the value of the options granted, would be appropriate since it is an acceptable method of computation of value of ESOPs, argues the press release.
Third, in view of the adverse impact on the carry-home compensation for the employees which has affected the viability of ESOP schemes, CII deems it necessary to provide a relief by way of prescribing a reduced weightage of 20% on the difference between the FMV of the ESOPs on the date of exercise and amount paid by the employee for the purposes of computing the value of fringe benefit on which FBT will be leviable.
Fourth, CII has recommended that an exemption from tax be granted in the hands of the employer on FBT recovered from employee. In view of the burden of FBT on the employers, there is a high possibility that the employer will recover FBT incidence from the employee. As the intention of the legislature is to introduce levy of FBT, irrespective of whether it has been recovered by employer from employee, such chargeability will lead to double taxation.
Also, the FBT amount so recovered from employees is an additional cost incurred by the employees for acquisition of ESOPs. Accordingly, CII feels that the FBT incidence so reimbursed by the employee to the employer be allowed to be added to thecost of acquisition while computing the capital gains at the time of sale of shares.
Fifth, with a view to avoid unjust hardships, CII has suggested issuing of a clarification stating explicit exclusion of FBT on ESOPs issued to employees including former / ex-employees outside India. It argues that as per the universal principles of taxation, their global income will be subject to tax in the country of residence, including tax on ESOPs in accordance with the respective offshore local laws. If FBT is recovered by the employer from such employees, no setoff will be available against the local tax of their jurisdiction, leading to multiple tax incidence.
Third, in view of the adverse impact on the carry-home compensation for the employees which has affected the viability of ESOP schemes, CII deems it necessary to provide a relief by way of prescribing a reduced weightage of 20% on the difference between the FMV of the ESOPs on the date of exercise and amount paid by the employee for the purposes of computing the value of fringe benefit on which FBT will be leviable.
Fourth, CII has recommended that an exemption from tax be granted in the hands of the employer on FBT recovered from employee. In view of the burden of FBT on the employers, there is a high possibility that the employer will recover FBT incidence from the employee. As the intention of the legislature is to introduce levy of FBT, irrespective of whether it has been recovered by employer from employee, such chargeability will lead to double taxation.
Also, the FBT amount so recovered from employees is an additional cost incurred by the employees for acquisition of ESOPs. Accordingly, CII feels that the FBT incidence so reimbursed by the employee to the employer be allowed to be added to thecost of acquisition while computing the capital gains at the time of sale of shares.
Fifth, with a view to avoid unjust hardships, CII has suggested issuing of a clarification stating explicit exclusion of FBT on ESOPs issued to employees including former / ex-employees outside India. It argues that as per the universal principles of taxation, their global income will be subject to tax in the country of residence, including tax on ESOPs in accordance with the respective offshore local laws. If FBT is recovered by the employer from such employees, no setoff will be available against the local tax of their jurisdiction, leading to multiple tax incidence.
Confederation of Indian Industry
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