FBT on ESOP: CBDT clarifications

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: only proportionate value of FB (value of FB in proportion to the length of period of stay in India by the employee during the grant period to the length of the grant period) would be subject to FBT. This gives rise to another problem of calculation in cases, where the employee has stayed in India for only a part (few hours) of the day.

* In the hands of the employee, the cost of acquisition of shares shall be the FMV on the date of vesting of the option as reduced by the amount actually paid by, or recovered from, the employee in respect of the security or shares, even when the employer is liable to pay FBT on the proportionate value of FB discussed above.

* If shares of a foreign company, listed outside India or unlisted, are issued by an employer to an employee, the FMV would need to be determined or valued by a Category 1 Merchant Banker registered with Sebi, which would be binding on the assessing officer. But, this increases the compliance requirements and costs of an employer.

* The benefits arising from issuance of ESOP to non-employees, including non-executive directors, would not be subject to FBT, but would be taxable as per the other provisions of the Income-tax Act, 1961.

* Where shares are allotted or transferred to an employee having different or multiple vesting dates, the First-In-First-Out (FIFO) method needs to be used.

* For an employer, just as FBT is not an allowable deduction, recovery of

FBT from an employee is not income subject to income-tax. Similarly, for an employee, recovery of FBT by an employer from an employee cannot be added to the cost of acquisition of the shares in the hands of the employee.

Conclusion

The above CBDT circular provides much awaited clarifications on certain issues relating to FBT on ESOP.