Is ESOP taxable in India?

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ESOPs are taxable in India under two instances:

  1. At the time of exercising the option.
  2. At the time of selling the option.

Taxation at the time of exercising the option: The difference between the Fair Market Value and the pre-determined price at which the shares under ESOP are issued is taxed as a perquisite in the hands of the employee as per their income-tax slab.

Taxation at the time of selling the option: The difference between the selling price and the price at which the ESOP was exercised is taxed as a capital gain. The tax rate would depend based on the holding period of the stock and would get taxed as either a Long term Capital Gain or a Short term Capital Gain.


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