NRI ESOP (Employee Stock Option Plan)

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ESOP is a way to reward employees by offering company shares at a discounted rate. NRI ESOP Shares come under the Non-PIS transaction and are taxable in India.

An employee stock ownership plan (ESOP) is a kind of employee benefit plan which is similar to a profit-sharing plan. Through ESOPs, the company wants to reward or encourage its employees to acquire ownership or stocks in the company.

The company offers ESOP to the employees at discounted costs. The ESOP stocks usually have a lock-in period and thus they cannot be sold immediately. An employee has to be a part of the organization for a specific period before selling the shares allotted as an ESOP.

The ESOP stocks are kept in the ESOP trust fund until the employee exercises them or the options become eligible to exercise or the employee leaves/retires from the company.

Shares allotted under ESOPs to NRIs come under the Non-PIS transaction category. NRIs will need NRI Saving Bank SB accounts, NRI trading and NRI demat accounts to hold or sell such shares.




ESOP Taxation for NRIs

ESOP to NRI is taxable in India. ESOPs are taxed at 2 instances:

  • On Exercising - When an employee exercises his ESOP option, the difference between Fair Market Value (FMV) and the exercise price is taxed as a prerequisite.
  • On Selling - When an employee sells his shares, he would be liable for capital gains tax. The capital gain taxes depend on the period of holding. Long term capital gains (LTCG) tax is NIL if a stocks are sold after a year of purchase. The short term capital gain tax is charged at 15% if the stock is sold within a year.

Check NRI Taxation in India (Stocks, Mutual Funds and Derivatives) for more detail about NRI taxation.


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