Employee Stock Option Plan (ESOP)

Tax Glossary Definition

Employee Stock Option Plan (ESOP)

An ESOP is a benefit scheme that allows employees to purchase company shares at a predetermined (fixed) price, often lower than the market price. It is designed to motivate and retain employees by giving them a stake in the company’s growth. The difference between the market price and the exercise price is treated as a taxable perquisite in the hands of the employee.

Example: If an employee is offered shares at ₹100 per share under ESOP, while the market price is ₹150, the ₹50 difference per share is considered a taxable perquisite and is added to the employee’s taxable income..

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