NOMINATED DIRECTORS’ ESOPs SPARED FBT

The Finance Ministry has decided to exempt companies from paying Fringe Benefit Tax (FBT) on Employee Stock Options (ESOPs) issued to non-executive directors. This comes even as the debate on whether non- executive or nominated directors can exercise their stock options is yet to be settled.
The companies which purchase securities from the market and give them to employees have been given a relief. The expenditure incurred by a company on purchasing shares would be allowable as a deduction in computing its taxable income. A large number of listed companies opt for this route. According to the CBDT, benefits arising out of Esop issued to non-employees will not be liable to FBT. The tax ability of such benefits in the hands of the non-employees will be determined in accordance with the existing law. But as per CBDT the companies allotting shares from their own share capital will not be able to claim it as a deduction, since no expenditure has been incurred. Some leading tax experts are of the view that the deduction can be claimed by the company even in such cases. The company in any case incur a cost as per ICAI guidelines, which is to be valued and debited to profit & loss account to enable the company to claim expenditure. claim expenditure Subsequently, if the employer recovers the FBT from the employee, it will not be treated as his income.