EQUITY GUIDE

OFFERING EQUITY TO YOUR TEAM IN

The

India 🇮🇳

Looking to offer equity to international talent joining your team? No matter where in the world your team members work, Easop makes it easy for you to offer equity compliantly to direct employees, EoR employees and contractors hassle-free, worry-free, and cost-efficiently!

Firstly, who can receive NSOs?

Direct employees

YES

NO

EOR employees

YES

NO

CONTRACTORS

YES

NO

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The tax information below is an extremely brief summary for standard situations of the referred relationship, and each situation may of course be different from the norm and have its own specificities.

A more comprehensive set of information for this country and each work relationship is available on Easop.

General Taxation

Learn about equity schemes and taxation policies in
the
India 🇮🇳
.

At exercise 👉 the spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as salary income.

At sale 👉 the gain is taxed as either short term or long term capital gain.

At exercise 👉 the spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as salary income.

At sale 👉 the gain is taxed as either short term or long term capital gain.

Taxation differs depending on the contractor's status, but as rule

At exercise 👉 the spread (i.e. the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the grantee) is taxed as salary income.

At sale 👉 the gain is taxed as either short term or long term capital gain.

Tax advantages

Learn about equity schemes and taxation policies in
the
India 🇮🇳
.
  • When the shares are held for more than 2 years, there’s a long term capital gain taxation (which is lower than the usual rate).

  • Tax deferral to time of sale only possible for companies qualifying as Indian start-ups.

  • When the shares are held for more than 2 years, there’s a long term capital gain taxation (which is lower than the usual rate).
  • When the shares are held for more than 2 years, there’s a long term capital gain taxation (which is lower than the usual rate).

Pay attention to:

⚠️ 409A valuations are not accepted to determine the fair market value of the shares (and taxable basis at exercise). Valuation by an Indian Category 1 Merchant Banker is mandatory.

⚠️ Repatriation of sale proceeds required (employee’s personal obligation).

⚠️ Alternatives to traditional stock options (such as phantom stock, VSOP or cash-settled stock appreciation rights) can be recommended.

⚠️ Granting stock options as a foreign company to people in India without having a local presence through a branch or subsidiary comes with a few uncertainties and legal obstacles, regarding a.o. the possibility to hold shares in a foreign entity and sell these shares within a certain period after exercise.

⚠️ Note that granting stock options to contractors could increase the misclassification risk (i.e. the contractor relationship being requalified as an employer-employee relationship, with all tax consequences that can go with it). This will never be the only factor though, what counts primarily for determining the degree of misclassification risk are factors relating to the modalities of the services performed (control over the contractor’s work, exclusivity, term of the services, etc.).

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