Dubai-based executive ordered to pay ESOP-tax in India : 15-01-2021

The Income Tax Appellate Tribunal (ITAT) has held the perquisite value of employee stock options (ESOPs) to be taxable in India, in the hands of a bank employee who was deputed to Dubai. The reason: The ESOPs were exercised while the executive was in the country and related to employment here.

In a recent order, the ITAT bench, comprising Pramod Kumar, vice-president, and Saktijit Dey, judicial member, rejected the contention of the HDFC Bank NSE -1.01 % employee that the ESOPs related to employment in Dubai and the income (perquisite value) did not accrue or arise in India and hence was not taxable in India. The bank employee also made an alternative submission, saying under the provisions of the India-UAE tax treaty, these sums could not be taxed in India.

Under the provisions of the I-T Act, the difference between the market value of the shares as on the date of exercise and the grant price is treated as a taxable perquisite. This worked out to Rs 72.8 lakh in fiscal year 2012-13 and Rs 83.6 lakh for the next financial year. The bank had accordingly deducted tax at source. Contesting that the perquisite value was not taxable in India, the employee had sought tax refunds. The ITAT upheld the action taken by the I-T authorities in treating the perquisite amount as taxable in India.

The ITAT bench held that Article 15 of the India-UAE tax treaty envisages taxation of the ESOP benefit, in the country where the related employment is carried out. Thus, even under the tax treaty the ESOP benefits would be taxable in India as it related to services carried out in India.

Source : Times of India