Esops or Employee stock options are granted as a remuneration to company employee's for their employment and service with the organization and herein after some pre-decided period, through these employees can get company shares. It is to be noted that for allotment of company shares, employee exercises the option and pays the price for the shares.
In a easy to understand language, the amount i.e. the difference between the fair market value of company shares and the exercise price shall be taxable as the perquisites for the employee in the year in which the employee exercises the stock option.
But in different conditions, ESOP gains are treated as Capital gains and not taxable as perquisites
1. Say for instance when the ESOPs have been issued and remain vested with the company employee but has never been exercised by the company employee and instead transferred, so any gains arising out of such a transaction are treated as capital gains. And herein short or long term capital gains tax implication truly depend on the date of grant of ESOPs and not the date when they are vested.
2. In a case when the promoter of the company is leaving employment in the company, on fulfillment of certain conditions he or she may exercise the stock option and allotment is after six months from the date on which the options were exercised. There is TDS implication on the share allotment date on the ESOP perquisite value.
And so herein an important point that is to be noted is that the withholding tax or TDS is charged on the allotment of shares when the promoter duly complies with the requirement and not on the date when the option is exercised.
These conditions suggest that not always ESOPs gains are taxable under perquisites but as capital gains in some of the conditions as listed above. Nonetheless for the purpose of taxation, you need to consider the share allotment date post the exercise of such an option by the company employee.