As per Indian laws, the employee needs to pay income tax when he/she exercises ESOP as well as when he/she sells the shares. Here are the basics:
- ESOPs are not taxable until an employee completes his/her vesting period
- When shares are bought by the employee, the total tax is charged on the difference between the fair market value (on the date of exercise) and exercise value of those shares
- Taxes are levied again when the allotted shares are sold off by employees. The profit earned in this case is considered as capital gains. A capital gain is defined as a profit which is the difference between the sale consideration and FMV on the exercise date.
Click here for the detailed blog on the tax implication of ESOPs