Employee stock ownership plan in india
Employees typically have to wait for a certain duration known as vesting period before they can exercise the right to purchase the shares.
The main aim of giving such a plan to its employees is to give shares of the company to its employees at a discounted price to the market price at the time of exercise. Many companies especially in the startup phase have now started giving Employee Stock Options as this is beneficial to both the employer as well as the employee. When the employees are given shares of the same company in which they are working, it gives them a sense of feeling that now they are not employees of this organisation but are the owners.
As they are now they owners, they also have a share in the profits of the company. In fact, since employees directly benefit from the increase in the share price, they focus on overall value creation for the company. This way, there were able to manage their direct costs.
This model not only helps the organisations preserve cash but also keeps the employees motivated. The employer is also required to deduct TDS in respect of such perquisite.
The perquisite value is computed as the difference between the fair market value of the share and the Exercise price. The Capital Gain is computed as the difference between the sale price and the price at which it was awarded by the Employer. Karan Batra is a Chartered Accountant currently working as a faculty member at the Institute of Chartered Accountants of India.
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Shares under employee stock ownership plan are taxed at the time of allotment and sale - Livemint
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ESOP (Employee Stock Ownership Plan) Facts
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