Discounted ESOPs Are Not Taxable: A Positive Move for Indian Startups

In what comes as a huge positive for Indian startups, an Income tax ruling has said that companies can claim tax deduction on discounted employee stock options as they are part of employee costs, according to a new report.

A special bench of the Bangalore Income Tax appellate Tribunal has ruled that since discounted stock option plans are used to retain employees and not raise capital, it can’t be treated as capital expenditure or contingent liability, taxable under existing provisions (source).

According to a copy of the Income Tax Tribunal’s order accessed by NextBigWhat, the bench said

The question before the special bench is thus answered in affirmative by holding that discount on issue of Employee Stock Options is allowable as deduction in computing the income under the head `Profits and gains of business or profession’.

The tax dispute was between Biocon Ltd & the Income Tax department.

Here’s a full copy of the order.


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