To compensate for the salary cuts, many companies are offering Esops. The benefit allows employees to buy stocks in the company where they work at a lower price than the fair market value
To compensate for the salary cuts, many companies are offering employee stock option plans (Esops). The benefit allows employees to buy stocks in the company where they work at a lower price than the fair market value (FMV).
The companies usually decide on the amount of Esops an employee can get each year. There is a process of allocation and buying and selling of Esops which is jargon-laden and it is essential to understand the taxation. Let’s decode them.
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The date an employee is entitled to buy stocks is called the vesting date. The date when an employee purchases the stock is the exercise date. The price at which the employee gets the stock is called exercise price, which is usually lower than the FMV of the company.
Esops are taxed twice. Once, when the employee purchases the stocks, and second, when an employee sells them. The taxation is different for listed and unlisted companies. In the latest Union budget, the government permitted the employees of eligible startups to defer paying the tax when they exercise the option.
