Tax Implications of ESOPs and RSUs for Employees

ESOPs

Tax Implications of ESOPs and RSUs for Employees

ESOPs

Employee Stock Option Plans (ESOPs) and Restricted Stock Units (RSUs) have become increasingly popular as part of employee compensation packages, especially in multinational corporations and startups. These instruments are not just used to reward performance but are key tools in retaining talent. However, the tax implications associated with ESOPs and RSUs can be complex and often misunderstood.

Understanding ESOPs and RSUs

Before diving into taxation, it is crucial to understand the fundamental differences between ESOPs and RSUs:

BasisESOPsRSUs
Choice to receiveEmployee has the option to buy shares at a predetermined priceShares are automatically granted after the vesting period
Type of CompaniesCommon in startups or growth-stage companiesMore prevalent in established and mature companies
Cost to EmployeeRequires payment of the exercise price (usually lower than FMV)Granted free of cost
Primary ObjectiveEmployee retention through deferred ownership benefitsEmployee retention with assured share allocation

Typically, ESOPs and RSUs are offered during onboarding and vest after a specified period. Let’s now look at how taxation works in India for both instruments.

Stage 1: Taxation as Perquisite under "Income from Salary"

For ESOPs:

Tax liability arises when the employee exercises the vested options. The taxable perquisite is calculated as:

Perquisite = Fair Market Value (FMV) on Exercise Date – Exercise Price Paid

This perquisite value is treated as part of salary income and taxed at the applicable slab rate.

For RSUs:

RSUs are taxed when the shares are allotted to the employee after the vesting period. Since RSUs are allotted free of cost, the entire FMV on the allotment date is treated as a perquisite.

Perquisite = FMV on Allotment Date

Again, this is taxed as “Income from Salary”.

Stage 2: Taxation under "Capital Gains"

Once shares from ESOPs or RSUs are allotted and taxed as perquisites, any subsequent sale of these shares results in capital gains or losses.

Capital Gain = Sale Price – FMV on Date of Exercise (for ESOPs) / Allotment (for RSUs)

The nature of capital gain—short-term or long-term—depends on the holding period from the date of exercise/allotment to the date of sale. If listed shares are held for more than 12 months, they qualify as long-term capital assets.

Illustration: Taxation of ESOPs – Step-by-Step Example

Let’s understand this with a practical example:

Scenario:

  • An employee joins in February 2023

  • Offered 1,000 ESOPs, exercisable after 1 year at a price of Rs. 7,500 per share

  • In February 2024, options vest and the FMV is Rs. 8,000

  • Employee exercises all options by paying Rs. 75,00,000 (1,000 × Rs. 7,500)

Stage 1: Perquisite Taxation

  • FMV on exercise = Rs. 8,000

  • Exercise price = Rs. 7,500

  • Perquisite = Rs. (8,000 – 7,500) × 1,000 = Rs. 5,00,000

This Rs. 5,00,000 is added to salary income for FY 2023–24 and taxed accordingly.

Stage 2: Capital Gains Taxation

  • Employee sells the shares in May 2025 at Rs. 10,000 per share

  • FMV on exercise (cost of acquisition) = Rs. 8,000

  • Capital Gain = Rs. (10,000 – 8,000) × 1,000 = Rs. 20,00,000

Depending on the nature of the gain (short-term or long-term), appropriate capital gains tax is applied.

ESOPs

Key Takeaways

  • Both ESOPs and RSUs are taxed in two stages:

    1. As perquisites under “Income from Salary”

    2. As capital gains on sale of shares

  • For ESOPs, employees need to pay to exercise the options, and the perquisite is the difference between FMV and exercise price
  • For RSUs, since they are allotted free of cost, the full FMV is taxable as salary

  • Planning the timing of exercise and sale is essential to optimize tax liability

  • Ensure that capital gains records are maintained, especially for unlisted shares

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ITR Filing Deadline Extended: New Last Date is September 15

ITR Filing

ITR Filing Deadline Extended: New Last Date is September 15

ITR Filing

The deadline for filing income tax returns for FY 2024–25 (AY 2025–26) was moved from July 31 to September 15 by the Income Tax Department on Tuesday.

“Considering the time needed for system readiness and the rollout of Income Tax Return (ITR) utilities for Assessment Year (AY) 2025-26, as well as the significant changes made to the notified ITRs,” the Central Board of Direct Taxes (CBDT) said in a statement on Tuesday.

According to the statement, this extension is anticipated to allay stakeholder worries and give sufficient time for compliance, guaranteeing the accuracy and integrity of the return filing procedure.

In order to facilitate accurate reporting, improve transparency, and streamline compliance, the notified ITRs for AY 2025–2026 have undergone structural and content adjustments. More time has been required for system development, integration, and utility testing as a result of these modifications.

ITR Filing

Additionally, without such an extension, the filing window would be effectively limited because credits resulting from TDS statements, which are due for reporting by May 31st, are anticipated to start reflecting in early June.

Therefore, the original July 31 deadline for filing ITRs has been extended to September 15 in order to provide taxpayers with a seamless and comfortable filing experience. According to the statement, a formal notification will be sent out separately to this effect.

However, taxpayers with short-term capital gains from listed equity and equity mutual funds, as well as those with capital gains from the sale of real estate, are not permitted to employ ITR-1.

Taxpayers who chose to forego the new income tax regime in AY 2024–2025 are also required to declare and specify whether they intend to keep their choice or change it, according to the announcement.

Form 10-IEA recognition details must be provided by those who are opting out of the new regime for the first time in AY 2025–2026.

Furthermore, the late submission of Form 10-IEA needs to be clarified

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ITR Portal Registration 2025: 8 Simple Steps to Register on the Income Tax e-Filing Portal

ITR Portal

ITR Portal Registration 2025: 8 Simple Steps to Register on the Income Tax e-Filing Portal

ITR Portal

As the Income Tax Return (ITR) Filing Season 2025 draws near, it’s time for taxpayers—especially first-time filers—to get ready by registering on the official Income Tax e-Filing Portal. Designed as a Mission Mode Project under the National E-Governance Plan, this portal is a one-stop destination for all tax-related services provided by the Income Tax Department, Ministry of Finance, Government of India.

Whether you’re filing your own return or assisting someone else, registering on the portal is the first essential step. Here’s a step-by-step guide on how to register on the ITR portal for FY 2024–25 (AY 2025–26).

✅ Pre-Requisites for ITR Portal Registration

Before you begin the registration process, make sure you have the following:

  • Valid and active PAN

  • Working mobile number

  • Accessible and valid email ID

ITR Portal

📝 How to Register on the Income Tax e-Filing Portal (2025)

🔹 Step 1: Visit the Portal

Go to the official Income Tax e-Filing portal:
👉 https://www.incometax.gov.in/iec/foportal/

Click on “Register” on the homepage.

🔹 Step 2: Enter PAN Details

Select “Register as Taxpayer”, enter your PAN, and click “Validate”.

If your PAN is already registered or invalid, an error message will appear.

🔹 Step 3: Fill in Basic Information

Provide mandatory details as per your PAN:

  • Full Name

  • Date of Birth (DOB) or Date of Incorporation (DOI)

  • Gender (if applicable)

  • Residential Status

Click “Continue”

🔹 Step 4: Enter Contact Information

You will now be asked to provide:

  • Primary Mobile Number

  • Email ID

  • Residential Address

Click “Continue”.

🔹 Step 5: OTP Verification

You will receive two separate 6-digit OTPs—one on your registered mobile number and another on your email ID.

Enter both OTPs and click “Continue”.

🔄 Note:

  • OTP is valid for 15 minutes.

  • You have 3 attempts to enter the correct OTP.

  • You can Resend OTP if needed.

🔹 Step 6: Confirm Your Details

Carefully review your information. If everything is correct, click “Confirm”.

🔹 Step 7: Set Password

Create a secure password by entering it in the “Set Password” and “Confirm Password” fields. Also, set a personalized message for added security.

Password Policy:

  • Length: 8 to 14 characters

  • Must include: Uppercase + Lowercase letters, at least one Number, and one Special Character (e.g., @ # $ %)

Click “Register”.

🔹 Step 8: Proceed to Login

Once registered successfully, click on “Proceed to Login”.

🔔 Don’t forget to log in and complete your profile to unlock all available services on the portal.

Important ITR Filing Deadlines for FY 2024–25 (AY 2025–26)

Category of TaxpayerITR Filing Due Date
Individuals & Non-Audit CasesJuly 31, 2025
Taxpayers Requiring Audit (e.g., Companies)October 31, 2025
Belated or Revised ReturnDecember 31, 2025

❗ Filing beyond the due date may attract late filing fees and penalties under the Income Tax Act.

🧾 Why Register on the ITR Portal?

Registering on the Income Tax Portal allows taxpayers to:

  • File returns online

  • View and respond to notices

  • Check refund status

  • Track previous filings

  • Download Form 26AS and AIS/TIS

  • Access pre-filled data for convenience

Registering on the ITR portal is a quick and straightforward process, but it’s the gateway to a hassle-free income tax filing experience. Don’t wait until the last moment—complete your registration today and be ready for ITR Filing 2025!

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For FREE

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