A summary of Indian Income Tax laws on calculation of Fringe Benefit Tax on Stock based Compensation.
RSU’s (Restricted Stock Units)
– Tax on Fair Market Value of shares on vesting
– Payable when shares are “allotted” or transferred to the employees
ESPP’s
– Tax on the Discount on purchase
– Payable on purchase
Options
– Calculation, Spread being difference between fair market value on vesting and exercise price
– Payable at the time of exercise
more info at Hindu. Current FBT rate is at 33.99%
4 replies on “Calculation and Payment of FBT”
Hi,
Is the FBT payed by the employer or the employee? what does the majority of the company doing ?
I heard some have given option for people to move away from RSU to stock. Can you help me on some inputs ?
as per the IT rules, the FBT is payed by the company. however they are allowed to recover this expense from the employee.
//I heard some have given option for people to move away from RSU to stock//
I think you mean that some company r giving RSU/stocks instead of the earlier practice of giving options.
Yes that is a global phenomenon and a welcome practice.
Reasons:
1) Options scandal: last year about 60-70 US firms were charged (and many punished) for backdating of options… hence many companies are forced/advised against backdating.
2) even though options are perceived as a cash benefit for the employee.. on the books of the company, its cost is zero.. while RSU/complete stock can be easily valued at the present value of the stock.. hence its a step towards a more realistic accounting practice.
i hope that helps
hi, i got RSU’s grant on 12-mar-2007 and got them vested on 12-dec-2009 of an mnc, my ctc is around 2.5 lakhs and my employer is saying that they will deduct tax on RSU @ 30% from feb and mar salaries, i have already shown an investment of 1lakh so will i get refund or what is that i have to do to save myself from FBT
fbt is paid by the employer (but it is collected by the employer from the employee).. hence the investments you make will not immune you from this burden.