Tax Liability in reference to ESOP for an Expatriate Employee

Tax liability in reference to ESOP requisite in the case of an expatriate employee would be in proportion to length of his service rendered

Tax liability in reference to ESOP requisite in the case of an expatriate employee would be in proportion to length of his service rendered
it at Delhi in its recent finding answered to a question as to whether entire perquisite is liable to be taxed on the proportionate amount or the entire perquisite amount dealt in a situation where an expatriate assessee is granted “employee stock options” (ESOP) having a vesting period of three years from the date of grant.
In the instant matter the assessee exercised the stock options while on his assignment in India. On the issue whether stock option benefit accrues or arises or is deemed to accrue or arise to the employee in India, it was argued that as the employee has been for only for a part of the time of the vesting period in India, only a proportionate stock option benefit, which is attributable to period spent in India accrues to the employee.
It was held that if an assessee has not rendered services in India for the entire grant period, only such proportion of the ESOP perquisite as corresponds to the period of service rendered in India would be taxable in India. Relying on the Delhi High Court finding, principle laid down in regard to Hypo-tax was followed that in view of the tax equalisation policy, the expatriate is protected from the adverse tax impact due to overseas assignment.

M/s. ACIT, Circle 48(1), New Delhi vs. Robert Arthur Keltz
(24.05.2013, ITAT, Delhi – Bench)