Devoted to Corporate Attorneys, Corporate Lawyers, and Corporate Counsel

India’s 2007-2008 budget, effective as of April 1, 2007, contains a proposal to assess a "fringe benefits tax" (FBT) on employers for stock options granted to employees in India.

The tax is payable on the difference between the fair market value of the shares on the date of exercise and the exercise price.  Employers may want to consider accelerating any unvested options and providing incentives for employees to exercise by March 31, 2007.

Employers considering granting new options to employees in India might suspend such grants until the laws are clarified.  Instead, employers may issue restricted stock, which are options that are immediately exercisable, subject to rights of repurchase. If such options are issued at fair market value and exercised on the same day, the difference between the fair market value of the shares upon exercise and the exercise price is zero.  This makes the FBT zero also.