ESOPs, keeping in mind the above considerations. Most of us sell the shares immediately upon receipt to enjoy the gains and regard this money as a part of a bonus. This money is spent on luxury holidays, cars or pre-paying large home loan balances, among others. After having utilised the money gained from ESOPs, employees forget the potential tax liability arising out of the capital gains and end up facing the unforeseen tax burden at a later stage.
To sum it up, to optimise returns from ESOPs one must hold the shares for more than one year to avoid long-term capital gains tax, sell on a recognised stock exchange in India and if the shares are sold in less than one year, the employee has to pay short-term capital gains tax.
The writer is managing partner, Nangia & Co. Inputs from Neha Malhotra