In today’s globalized business environment, it’s increasingly common for employees working in Indian subsidiaries of foreign companies to receive Foreign ESOPs (Employee Stock Option Plans). While these can be lucrative wealth-creating tools, they also bring complex tax implications, especially at the time of vesting, holding, and sale.
If you’re an Indian tax resident who has received Foreign ESOPs, here’s how you can accurately disclose them in your ITR, whether you’re holding them or have sold them during the financial year.
📌 Understanding Foreign ESOPs
A Foreign ESOP is a stock option offered by a foreign parent company to employees of its Indian subsidiary. Upon exercise, the employee receives shares of the foreign company. These are considered perquisites and are taxed in India even though the shares are foreign.
🧾 When You Exercise and Hold the Foreign ESOPs:
1. Taxability on Exercise
When you exercise your ESOPs (i.e., convert the options into shares), the difference between the Fair Market Value (FMV) on the date of exercise and the exercise price is treated as a perquisite under Salary Income as per Section 17(2)(vi) of the Income Tax Act.
Example:
– Exercise Price: ₹100
– FMV on Exercise Date: ₹500
– Perquisite: ₹400/share (taxable as salary)
2. Disclosure in ITR When Held
Even if you don’t sell the shares, you’re required to disclose them in your Income Tax Return:
➤ Schedule FA (Foreign Assets):
– If you’re a resident and ordinarily resident (ROR), you must disclose foreign-held shares in Schedule FA.
– Include country code, nature of asset, date of acquisition, cost, peak holding, and closing balance.
➤ Schedule AL (Assets & Liabilities) – if applicable:
– Mandatory if income exceeds ₹50 lakh. Disclose value under ‘Shares and Securities’.
💰 When You Sell Foreign ESOPs: Capital Gains Tax
1. Taxability on Sale
Tax depends on holding period:
▸ Short-Term Capital Gain (STCG): Held < 24 months – taxed at slab rate
▸ Long-Term Capital Gain (LTCG): Held > 24 months – taxed at 20% with indexation
2. Capital Gains Computation
– Sale Price = Consideration in INR
– Cost = FMV on exercise date
– Gain = Sale price – Cost
3. Disclosure in ITR
– Report in Schedule CG under ‘Unlisted Shares’
– Include purchase/sale dates, INR values, type (LTCG/STCG), and indexed cost if LTCG
🌍 Foreign Tax Credit (FTC) – Double Taxation Avoidance
If foreign taxes are paid on sale (e.g., US withholding tax), claim FTC under Section 90/91:
– File Form 67 before ITR
– Provide proof of foreign tax paid
– Ensure consistency in Schedule FA and CG
📋 Example Summary Table:
| Stage | Tax Head | Disclosure in ITR | Notes |
| Exercise | Salary (Perquisite) | Form 16 auto-filled | Employer deducts TDS |
| Holding | NA | Schedule FA, AL (if req.) | Disclose foreign shares held |
| Sale | Capital Gains | Schedule CG | LTCG @20% with indexation |
❓ FAQs on Foreign ESOPs for Indian Employees
1. Do I need to disclose foreign ESOPs if I haven’t sold them?
Yes. As a ROR, you must disclose them in Schedule FA.
2. What if I forgot to disclose them in ITR?
Non-disclosure can lead to penalty under Black Money Act. File revised return.
3. Is foreign dividend income from such shares taxable?
Yes. Taxable at slab rate under ‘Other Sources’. FTC may be claimed.
4. I received ESOPs from a US company. Do I need to report in Schedule FA?
Yes. Provide country-wise foreign holdings with cost and peak balance.
5. Can I get refund of excess TDS deducted on perquisite?
Yes, claim refund while filing ITR if total tax liability is less.
📝 Conclusion
Foreign ESOPs can be powerful wealth creators, but they come with complex tax obligations. Whether you are holding or have sold your foreign shares, proper reporting in ITR is crucial to avoid non-compliance and penalties.
Stox N Tax 
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