FBT guidelines on stock options likely soon

NEW DELHI: The government will soon issue guidelines on determining fair market value of stock options given by companies to their employees for calculating fringe benefit tax (FBT), finance minister P Chidambaram said on Tuesday.

“Guidelines (on fair market value) would be issued shortly,” he told reporters after a conference of Income Tax chief commissioners here.

He denied there was any ambiguity about taxing employee stock options (Esops).

Chidambaram had earlier said FBT on Esops would be calculated at the time of vesting the options to employees and not at the time of allotment as was originally proposed in the Budget.

In the Budget for 2007-08, he had proposed that the fair market value of the fringe benefit would be determined in accordance with a prescribed method, on the date of exercise of the option. It had proposed to include any specified security or sweat equity shares allotted by a company to its existing or former employees within the ambit of FBT.

However, this proposal was changed when the finance bill was passed in the Parliament. The fair market value would now be determined when the company entitles a employee to get Esops at any later date.

This could bring relief to employers in a rising stock market as the value at the time of vesting is generally lower than the value at the time of allotment. But in a volatile or falling market, the FBT amount would increase.