Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
The formula
At exercise, the taxable perquisite is: (FMV on the exercise date − exercise price) × number of shares. This amount is added to your salary and taxed at your slab. It captures the ‘gain’ you got by buying shares below their value — the benefit your employer effectively gave you.
How FMV is fixed
For unlisted (startup) shares, the FMV on the exercise date is determined by a merchant banker under the prescribed valuation method, as on a date within a set period before exercise. For listed shares, it’s the market price. The exercise price is whatever your ESOP scheme fixed. Confirm the current FMV-determination rule for ESOP perquisites.
A worked example
Example: you exercise 1,000 options at an exercise price of ₹10 when the merchant-banker FMV is ₹110 — the perquisite is (₹110 − ₹10) × 1,000 = ₹1 lakh, taxed as salary. Later, when you sell above ₹110, the further gain is capital gains. Employees of eligible startups can defer the perquisite tax. Our team can compute your ESOP tax.