Govt notifies FBT norms on ESOPs

The Central Board of Direct Taxes (CBDT) today notified the long awaited norms for valuation of employee stock options (ESOPs) for the purpose of calculating fringe benefit tax (FBT).

Accordingly, the value of the ESOPs for the purpose of levy of the tax shall be the fair market value (FMV) of the option on the date of vesting, minus the amount actually paid (or recovered from) the employee.

The new rule will take effect from April 1, 2008 and will apply in relation to the assessment year 2008-2009 and subsequent years.

The Finance Act, 2007 had amended the provisions of the Income Tax Act to provide that employers will be liable to pay fringe benefit tax on the value of ESOPs granted to employees as and when the options were allotted or transferred to the employees.

Explanation (i) to clause (ba) of sub-section (1) of section 115WC of the Income-Tax Act defines fair market value to mean the value determined in accordance with the method as may be prescribed by the board. Accordingly, a new Rule 40C has been added to the Income Tax Rules for this purpose