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Question ID : 44490

Taxation in hands of employee

Mr. A is an employee of M/s XYZ Private Limited. He has received some ESOP over the period of time during his employment with M/s XYZ Private Limited. Now, M/s XYZ Private Limited who were holding around 80% of stake in startup decided to exit from the startup and sell the whole stake. Due to the exit from this startup the valuation of M/s XYZ Private limited has gone down and board decided to compensate the ESOP holders. Board decided to pay say Rs. 100,000/- per ESOP to its employee as compensation for loss in valuation before and after the exit from startup. Que.: What will be taxation of this receipt in the hands of employee?

Posted by samirkumar gokulbhai kasvala on May 18, 2023

Filed Under Startup Funding

Answer ID : 85416

If the amount recived by the employees towards the ESOP is shown as the Salary Income, in such a case the taxability under the Indirect Laws will be as follows; The services by an employee to employer in terms of the employment contract is neither a supply of goods nor a supply of services, in terms of Para 1 of Schedule III of the CGST Act 2017, thereby, the amount paid by the employer to employee in terms of the employment contract, is not subject to GST. Please validate the taxation under the Income Tax law, as this revert is based on the assumption that the amount paid to employee is shown as salary income.

Posted by SREENIVASULU THULASIRAM on May 15, 2024