Any change in ESOP, RSU and Unlisted share taxation after the 2024 budget?

Taxation
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Is there any change in ESOP, RSU and Unlisted share taxation after the 2024 budget? (US company Indian Resident)
I am aware of the changes in the capital gain tax for listed stocks but what abt RSU, Perquisite tax, unlisted shares capital gain? Is there any change in it?

@Quicko

2

@Jack_R

ESOPs and RSUs:

  • Taxation on vesting: Earlier, tax was payable on vesting of ESOPs and RSUs, even if the shares were not sold. This has been changed. Now, tax will only be payable when the shares are sold or transferred.
  • Capital gains tax: The short-term capital gains tax on ESOPs and RSUs has been increased from 15% to 30%. However, if the shares are held for more than 1 year, they will be considered long-term capital gains and taxed at 20% with indexation benefits.

Unlisted shares:

  • Capital gains tax: The short-term capital gains tax on unlisted shares has been increased from 15% to 30%. However, if the shares are held for more than 1 year, they will be considered long-term capital gains and taxed at 20% with indexation benefits.
  • Perquisite tax: The perquisite tax on unlisted shares has been abolished. This means that employees will no longer be taxed on the difference between the fair market value of the shares and the price at which they are allotted.

Additional points:

  • The changes apply to ESOPs and RSUs granted on or after 1st April 2024.
  • The changes do not apply to ESOPs and RSUs granted before 1st April 2024.
  • The changes do not apply to unlisted shares acquired before 1st April 2024.

It is important to note that these are just a summary of the changes. It is advisable to consult with a tax professional for specific advice based on your individual circumstances.

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Thanks. I think the Capital gain tax for Esop might be incorrect. They removed indexation benefit so it should be something else

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ESOP Taxation on vesting: We never had tax for this. Do you mean there won’t be any tax for exercising the ESOPs? (Perquisite tax)

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Has STCG been changed to 30%? I thought it was your Slab rate that applied here.

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  • Short-Term Capital Gains (STCG): If the shares are sold within 36 months of allotment, the gains are considered short-term and taxed at the applicable slab rates1.
  • Long-Term Capital Gains (LTCG): If the shares are sold after 36 months, the gains are considered long-term. The indexation benefit is no longer available, and the gains are taxed at a flat rate of 20%2.
  • Tax Deferral: There are provisions for deferring capital gains tax if the ESOP owns at least 30% of the company’s shares after the sale and the seller reinvests the proceeds into qualified replacement property within a certain time frame3
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You’re correct. The Short-Term Capital Gains (STCG) tax rate for ESOPs is still based on the applicable slab rates for most assets. However, there have been some changes in 2024:

Listed Equity Shares: The STCG tax rate for listed equity shares has been increased to 20% from the previous 15%1.
Other Assets: For other financial and non-financial assets, including ESOPs, the gains are taxed at the applicable slab rates2.
So, for ESOPs, the STCG tax rate remains aligned with your income tax slab rate, not a flat 30%.

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When it comes to ESOPs, the taxation occurs at different stages:

  • Vesting: There is no tax at the time of vesting. Vesting simply means you have earned the right to exercise the options.
  • Exercising: When you exercise the ESOPs, the difference between the fair market value (FMV) of the shares on the date of exercise and the exercise price is considered a perquisite. This amount is taxed as part of your salary under the head "Income from Salary"1.
  • Sale of Shares: When you eventually sell the shares, the gains are subject to capital gains tax. The period between the exercise date and the sale date determines whether the gains are short-term or long-term:
  • Short-Term Capital Gains (STCG): If sold within 36 months, taxed at your applicable slab rate.
  • Long-Term Capital Gains (LTCG): If sold after 36 months, taxed at 20% without indexation benefit2.
    So, while there is no tax at the vesting stage, there is a perquisite tax at the exercise stage and capital gains tax at the sale stage.
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There is no vesting tax on ESOP. Vesting tax is only for RSUs

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@dishant_raut can you please share any references
to justify any of the claims shared above?

(as i believe the information shared in the above message is inaccurate.
It reads a lot like the output of some LLM.)

Typically, i would share references to corresponding sections of the IT-Act.
However, since this is a recent budget bill, and the IT-Act is yet to be updated,
here’s the recent Finance Bill (Budget) 2024 instead.

In the above finance bill,
one can search for the applicable IT-Act sections,
to find the relevant proposed/applicable updates.

eg. For tax on LTCG under section 112,
searching for “Amendment of section 112”, shows
the update to the LTCG tax-rate from 20% to 12.5% (without indexation).
image

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I think nothing has changed recently.

Less than two years = STCG at 30%
More than two years = LTCG at 20%

My employer hasn’t informed anything about change in ESOP taxation. Either they missed this completely or I am ignorant. :smile:

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Hi @Jack_R,

For both unlisted shares and foreign ESOPS, the LTCG will be taxed at 12.5% and STCG will be taxed at the applicable slab rate. The holding period to classify the gains as short-term or long-term will be 24 months.

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