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Friday 7 August 2020

Perquisites: sweat equity shares


The perquisites in respect of "sweat equity shares" (SES) is chargeable to tax in the hands of employees, if such shares are allotted or transferred to the concerned employee after March 31, 2009. Such sweat equity shares are allotted or transferred on or after 01-04-2009.

Valuation of perquisites in respect of sweat equity shares | Photo Source: www.unsplash.com
PERQUISITES: SWEAT EQUITY SHARES

"Sweat equity shares" means share issued by a company to its employees (including directors, former employees) at a discount or for consideration other than cash for providing know-how or making available rights within the nature of intellectual property rights or value additions, by whatever name called. Such shares may be equity shares, any other shares, script, debentures, derivatives or units. These may be transferred / allotted directly or indirectly to the employee.
Taxpoint: If such shares are allotted or transferred not for above reasons (i.e, for providing know-how, etc.), then it is not taxable as perquisite. Example, if such option is granted to the employee against acquisition of immovable property by the company, then such benefit shall not be considered as perquisite. However, employee is liable to pay tax, if any, under the head ‘Capital Gain’.



VALUATION OF SWEAT EQUITY SHARES ALLOTTED OR TRANSFERRED TO THE ASSESSEE

Specified security means the securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956 and, where employees’ option has been granted under any plan or scheme therefore, includes the securities (sweat equity shares) offered under such plan or scheme. As per section 2(h) of the Securities Contracts (Regulation) Act, 1956, securities (sweat equity shares) includes:
(a) shares, debentures, scripts, stocks, bonds, debenture stock or other marketable securities of a like nature in or of any incorporated company or organisation or any other body corporate;
(b) derivative;
(c) units or any other instrument issued by any collective investment scheme to the investors in such schemes;
(d) security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
(e) units or any other such instrument issued to the investors under any mutual fund scheme;
(f) any instrument or certificate (by whatsoever name called), issue to an investor by any issuer being a special purpose distinct sweat entity which possesses any debt or received and receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial or grant advantageous interest of such investor in such debt or received and receivable, including mortgage debt, because the case could also be ;
(g) Government securities;
(h) such other instruments as may be declared by the Central Government to be securities; and
(i) rights or interest in securities.



PERQUISITES: SWEAT EQUITY SHARES

Value of any specified security or sweat equity shares shall be considered as perquisites in hands of employee if the following conditions are satisfied:
(a) Such security or sweat equity shares are allotted or transferred on or after 01-04-2009.
(b) Such security or sweat equity shares are allotted or transferred by the employer (former or present) directly or indirectly.
(c) Such security or sweat equity shares are allotted or transferred free of cost or at concessional rate to the assessee.



VALUATION OF SWEAT EQUITY SHARES

Value of such perquisite shall be computed as under:

The fair market value (FMV) of the required sweat equity shares or security, as the case may be, on the date on which the choice is exercised by the assessee / taxpayer.
Less: The amount actually paid by, or recovered from the assessee in respect of such security or shares.

Notes: Option means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price.





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