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Tarun Suthar
ย โขย
The Institute of Chartered Accountants of Indiaย โขย 10h
What is an ESOP (Employee Stock Ownership Plan)? ----- Explained. (Employee Perspective) Imagine your company gives you a chance to own a piece of the business. Thatโs what an ESOP is company shares reserved for employees like you. You donโt get them all at once, and you donโt get them for free, but you get them at a much lower price than the public would pay. โ๏ธ How ESOP Works in 4 Simple Steps 1. Grant Your company says: โWeโre giving you 10,000 shares at โน100 each. Youโll earn the right to own them over time.โ 2. Vesting Period This is like a waiting period. Shares become yours gradually, often over 4 to 5 years. For example, if you stay 5 years, you get to keep 100% of them. 3. Leaving the Company If you leave early, you only keep the shares that have vested. The rest are forfeited. 4. Redemption (Selling Your Shares) After theyโre vested, you can sell your shares-maybe when the company goes public (IPO), buys them back, or gets acquired. โ๏ธ Taxxxes (Yes, There Are Two Stages)๐ 1. At Exercise When you buy the shares You pay tax on the difference between the market price and the price you pay (this is called โperquisite taxโ). 2. At Sale When you sell the shares You pay tax on the profit (sale price minus market value at the time you exercised the shares). โ ๏ธ If you held them for >1 year: Taxed at 12.5% โ ๏ธ If <1 year: Taxed at 20% Example: Rahul's ESOP Journey Heโs given 10,000 shares at โน100 each After 5 years, the shares are worth โน500 (market value) He buys all 10,000 shares at โน100 = โน10,00,000 Since market value is โน500, the taxable amount is โน40,00,000 and he pays โน12,00,000 tax 2 years later, he sells them at โน1,200 per share Profit = โน1.2 Cr - โน50L = โน70L Capital gains tax @12.5% = โน8.75L Net Profit = โน61.25L
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