ESPP, ESOP and RSU are benefits granted to individuals during their first job.

The benefits are included in their CTC package, but most employees find it hard to understand these benefits and often confuse them with each other.

Following is an explanation of each benefit and the tax implications associated with them. Restricted Stock Units can be understood fairly easily. A vesting period is basically the duration for which the employee must wait to claim the shares allotted by the company.

RSUs have been identified as a great means for companies to reward their employees, like WIPRO, who rewarded 4. RSUs are also a relatively good means for an employer to ensure that their employees stick with them for the long term.

Employee Stock Options are usually offered to employees of the biggest organisations in India, particularly IT companies that are listed outside the country. An individual with a stock option is one who has the right to purchase a stock at a future date and at a predetermined price decided at the time the individual took those stock options.

Basically the future market price of a stock does not matter and the individual will always have the option to purchase the stock at the predetermined price. However, in case the current market price of the stock is lower than the predetermined price, then the customer can opt to not exercise the stock option. For instance, if an individual joins a company on the 1 st of January, , and receives ESOPs with a three-year vesting period from the company and the vesting price is set at Rs.

However, in case the price of the stock has increased to Rs. In total, the individual makes a profit of Rs. Now, in case the value of a stock reduces from Rs. The money contributed towards the plan accumulates over a few months before the employee decides to purchase stock from the company at a discounted price.

The ESPP will determine the discount the employee will receive.

RSU, ESPP and ESOP - Understanding Meaning and Taxation

However, it is usually the minimum price at the start and end of the ESPP. For instance, if a company offers an ESPP that can be opted for twice in a year, there are two windows — January to June and July to December. The company must be informed beforehand by the employee regarding the amount of money they would like to contribute on a monthly basis. Suppose an individual opts the January to June window and contributes Rs.

If the price of the stock was Rs. The rules that govern the taxation of ESPP, ESOP, and RSUs are the same as they all deal with stocks that an employee receives and the taxation rules are also fairly easy to understand.

How Restricted Stock And RSUs Are Taxed

In fact, there are only two rules, viz. When an employee sells their ESPP, ESOP or RSU once the vesting period is complete and receive their money, it is their duty to pay tax on that amount in India.

The nature of the gains will determine the amount of tax the employee will have to pay. In case the shares are sold with a year of acquiring them, the gains resulting from such a sale are known as Short Term Capital Gains , and shares sold after a year of acquiring them are known as Long Term Capital Gains. Returning you to where you were Sign in with Facebook Recommended for the best experience. Home Tax Understanding the Meaning and Taxation of RSU, ESOP and ESPP Understanding the Meaning and Taxation of RSU, ESOP and ESPP.

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