By Mayur B. Nayak | Tarun Kumar G. Singhal | Anil D. Doshi | Mahesh G. Nayak
Chartered Accountants
Employees’ Stock Option Plans (“ESOPs”) play a significant role in motivating and retaining key employees of companies / multinational groups. In many cases, employees of the Indian subsidiaries are offered/given ESOPs of the parent company / other group companies. Various tax and regulatory issues arise for consideration and proper implementation of such schemes in India.
In this article, the authors have examined the important Taxation, FEMA and Accounting aspects in such situations, by way of a case study. For the sake of completeness, certain FEMA and accounting aspects have also been discussed in addition to taxation issues.
INTRODUCTION
Over the last few decades, the global movement of capital and the growth of multinational enterprises (“MNEs”) have increased significantly. With this, the recruitment and retention of key and high-performing employees have emerged as important challenges for the MNEs. ESOPs, with their various variants, have been used to achieve the goal of attracting and retaining talent. MNEs offer ESOPs of parent companies to the employees of their various subsidiaries/associates across the globe to incentivise them.
In an Indian scenario, this raises various regulatory issues relating to Foreign Exchange Management Act, 1999 (“FEMA”), taxation, withholding obligations and accounting.
In order to better understand the issues and their probable imp
