ESOP valuation norms for FBT by Sept 8

The guidelines on the valuation of employees' stock option plans (ESOPs) for calculating fringe benefit tax (FBT) will be issued by September 8. "The Central Board of Direct Taxes (CBDT) is likely to issue the valuation guidelines by September 8 as the due date for paying the second instalment of advance FBT is September 15," a finance ministry official said.

After the norms are issued, there will be just one week's time for companies to calculate the FBT liability on ESOPs and pay the tax.

The companies will pay the first and second instalments of FBT on ESOPs by September 15, since they could not pay the same on June 15, the due date for the first quarter (April-June) advance tax, due to lack of a method for determination of the fair market value of ESOPs. On the value of fringe benefit, FBT is levied at 30 per cent plus surcharge and education cess thereon.

In the Budget for 2007-08, the Centre had announced charging FBT on the value of shares or sweat equity allotted to employees by a company free or at confessional rates.

The fair market value of the ESOPs for the purpose of taxation would be reckoned on the date of vesting of the option and not the date of allotment or transfer of the shares as was announced in the budget for the current fiscal.

The above change, which was announced by Finance Minister P Chidambaram in Parliament in May, is likely to bring relief to employers in a rising stock market as value at the time of vesting is generally lower than the value at the time of allotment.