New Delhi: Finance Minister P Chidambaram on Monday said that the fringe benefit tax (FBT) on employee stock options (ESOPs) proposed in Union Budget will be payable by the company and will also apply to the ESOPs not cashed.
But the industry body FICCI seems not happy with the proposal. The FICCI on Monday said that Chidambaram’s proposal to impose FBT on ESOP was a ‘retrograde step’ and against the accepted canons of taxation.
In a discussion paper on National Conference on Union Budget 2007-08, FICCI argued out that ESOPs cannot be treated as fringe benefit.
According to the FICCI paper, SEBI guidelines stipulate that when ESOPs are granted at a discount to market price, the value needs to be charged as an expense in the company's profit and loss account.
As the expenditure is recognised as a business expense in the nature of employee costs, it cannot be described as a fringe benefit.
Describing the current provisions in the Income Tax Act, 1961, FICCI said that capital gains tax is imposed on employees whenever they sell the shares of an ESOP in the market.
The gains accruing on account of ESOPs, it added, are in the nature of capital gains brought about by market conditions and cannot be treated as fringe benefit conferred by an employer.
Levying FBT on ESOPs would tantamount to taxing the same benefit twice, first in the hands of the company and later in the hands of the employees, "in violation of the accepted canons of taxation", the chamber said.
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