For folks in start-ups, what are the tax implications when you decide to buy your vested ESOPs at a particular strike price (company decided). Is the difference between the fair market value of an esop and the strike price considered an income and taxed in accordance with the corresponding tax slabs in the year of purchase ? TC: 75 lpa #equity #startup #swiggy #flipkart
BTW what kind of job pays 75 LPA?
Software engineer at a decent company with 4-5 yoe+
Taxed on exercise based on your slab for the difference between FMV and strike price. You have to pay tax legally ( not paying would be evasion ). This is the major reason why esops make very little sense in India.
Hasn’t this rule been changed this year?
Only if you exercise and not leave the company ( which makes very little sense ). You are forced to exercise options ( since most options expire in 1-3 months of you leaving the company ) as soon as you leave the company and hence the tax. There are also other restrictions. You can read here https://www.mondaq.com/india/income-tax/1025648/tax-on-esops-deferred-for-start-ups
Are there no loopholes that one can use to avoid this ridiculous taxation? The current laws only hurt the employee as they the risk reward ratio gets skewed largely towards risk.
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no taxes on money on paper. Taxes is money in your account. You can be a billionaire with the RSU's/ stocks. But govt won't tax you unless you get money after selling those stocks.
Thanks seniorguy. That was my understanding as well that only money in hand is taxable, but then I came across this article on cleartax while paying my advance taxes. It clearly describes the shitty taxation laws when an employee decides to exercise these ESOPs. https://cleartax.in/s/taxation-on-esop-rsu-stock-options Asking this because a lot of companies inflate TCs by giving a significant chunk of ESOPs to SWEs who many not necessarily be aware of the vagaries of the tax system. Basically you are shelling out money even before the firm decided to monetize your holdings either via a buyback or an IPO, which again may or may not happen or myself being a software guy has completely misunderstood these tax laws, which I believe I haven't.
Yes, @incendo is wrong, you wil be taxed when u buy ESOPs