My employer offered me an ESOP two years ago when I joined the company. I will receive these shares in January 2025. I work for an unlisted company, and a listed company promoted me. How much tax will I have to pay if I sell these shares? Do I get an examination benefit?
The shares concerning ESOP have tax incidence at two stages in India. First, tax incidence arises when you exercise the option to acquire the shares. At this stage, the difference between the fair value of the shares and the price at which you get the shares is taxed as perquisites under the head salaries. Your employer will consider the value of such perquisite and deduct tax from your regular salary at the time or exercise of the option under ESOP.
The employer will deduct TDS even though you have not received any cash benefits when you receive the shares. The second stage tax will get triggered when you actually sell these shares. The difference between the sale value of the shares and the cost shall be taxed as capital gains. Cost for the purpose of ESOP share shall be aggregate of the values of perquisite value taken for TDS purpose and amount if any paid by you, Since the shares being acquired by you are unlisted the holding period requirement for it to qualify as long term is 24 months.
So, if you sell these shares within 24 months after allotment, the surplus shall be treated as short-term capital gains, included in your other regular incomes, and taxed at the rate applicable to you.
It is advisable to hold these shares for more than 24 months to take advantage of the exemptions available for long-term capital gains and the lower rate of tax of 12.50% without indexation.
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Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant his X handle.
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