What is TDS on ESOPs
TDS (Tax Deducted at Source) on ESOPs (Employee Stock Options) refers to the tax deduction made by the employer at the source from the income received by an employee upon exercising their stock options. ESOP taxation in India depends on rule.
When an employee exercises their stock options, they receive a taxable benefit according to the Income Tax Act of 1961. The employer is responsible for deducting TDS from the taxable benefit amount and remitting it to the government.
For more information to Visit https://www.incometax.gov.in
The TDS rate on ESOPs is determined based on the employee’s income bracket and is calculated using the prevailing income tax rates. It computes on the fair market value of the shares at the time of ESOP exercise.
It’s worth noting that TDS on ESOPs is applicable only when the employer obligates to deduct TDS as per the provisions of the Income Tax Act. However, there are cases where TDS may not deduct, such as when the employee declares their total income to be below the taxable threshold or when the employer is a startup meeting specific government-defined criteria.
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