FBT on shares to employees- CBDT issues Rules
As per clause (d) of sub-section (1) section 115 WB, introduced by Finance Act, 2007, an employer is liable to pay Fringe Benefit Tax on any consideration for employment provided by way of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by such employer free of cost or at concessional rate to his employees. The value of the fringe benefit is determined as the fair market value of the specified security or sweat equity share on the date on which the option vests with the employee as reduced by the amount actually paid, by or recovered from the employeein respect of such security or shares.The fair market value for this purpose is to be determined in accordance with the method prescribed by the Board.
The first instalment of this FBT was to be paid by 15th June, but as CBDT was not ready with the method, this was postponed to 15th September, even by which date Board was not ready.[see - 15.06.2007]. Without a further postponement, Board is now ready with the rules.
How to determine the fair market value?
1.It is the average of the opening and closing price of the share in the Stock exchange on the date of vesting the option with the employee.
2.What happens if the share is listed in more than one exchange? Then take the average from the exchange which had the highest volume of trading. [Customs could have helped you with 'normal transaction value']
3.What happens if there is no trading on the date of vesting of option?
Take the closing price of the nearest date - but what happens if there is trading in more than one exchange?
Simple! Follow Step 2 above; take the exchange with the highest volume of trade in this particular scrip.
4.So far, so good, but what is the value if the share is not listed at all? [Which employee would want shares of an unlisted company? Sometimes they are also sought after - anyway Law has to take care of all situations] If the shares are not listed, then the fair market value has to be determined by a merchant banker.
NOTIFICATION. 264/2007, Dated : October 23, 2007