New Delhi, Dec 7 (PTI) ESOPs should be taxed only whenthe benefits are realised by an employee, said a report ontaxation in the digital economy.
Companies offer stocks to their employees by way ofEmployee Stock Option Plans (ESOPs).
The digital economy employs a lot of employees, many ofwhom are rewarded through ESOPs, said the report 'Taxation ofthe Digital Economy: Impact analysis for India', prepared bythe Internet and Mobile Association of India (IAMAI) andNishith Desai Associates.
"Keeping in mind the needs of employees in a growingsector, such as digital economy and keeping in mind liquidityissues at the time of grant of stock under ESOP schemes, it isimportant that employees should not be taxed before theyactually realize any benefit in relation to the stock issuedto them," the report said.
Currently, at the time of such exercise of options andgrant of shares, the difference between the 'Fair MarketValue' of the shares and the exercise price paid is taxed inthe hands of the employee and the employer is subject towithholding tax obligations on the same, the report said.
The report maps the various tax issues and challengescurrently affecting the digital businesses at various stagesof their business cycle -- early stage, over the operatinglife and exit stage.
The report recommends predictability and clarity of taxprovisions to ensure the digital sector reaches its potentialof USD 1 trillion by 2022.
It discusses various concerns like characterisation ofincome, angel tax, merger, demerger and acquisitions, GST andvarious other such issues that affect digital businesses. PTINKD CSABM.
This is unedited, unformatted feed from the Press Trust of India wire.