The purpose of this article is to explain in brief, how ESOPs are taxed in India, from an employee’s perspective.
How are ESOPs taxed in India:
As an employee, your liability to pay tax from ESOPs arises on two occasions,
Reference: https://www.capitalmind.in/2021/05/guide-to-employee-stock-options-esop-taxation-india/
(FMV on exercise date - Exercise price) = Taxed as Perquisite of salary and taxed at tax rate, which is deducted by employer.
This is deducted from the monthly salary & cash flow reduces for that month.
Note- tax only arises on exercise of the option, not on allotment.
The Cost of Acquisition for calculating CG is the FMV on exercise date.
A relief that has been provided in the 2020 budget -
Employee need not pay this Tax arising on Op.1 till these 3 events: