Introduction
Direct employees
Can receive NSO?
✅ Yes!
General taxation
Spread taxed as salary income.
Sale gain taxed as either short term or long term capital gain.
General tax, reporting & legal paperwork difficulty score
🤯 🤯 🤯
Tax advantages
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.
Warning point
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.
EoR employees
Can receive NSO?
✅ Yes!
General taxation
Taxation differs depending on contractor’s status. As a rule, spread likely taxed as business income and gain made upon sale as capital gain.
General tax, reporting & legal paperwork difficulty score
🤯 🤯
Tax advantages
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).
Warning point
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.
409A valuations are likely 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 likely required.
Repatriation of sale proceeds required (contractor’s personal obligation).
Alternatives to traditional stock options (such as phantom stock, VSOP or cash-settled stock appreciation rights) can be recommended.
Contractors
Can receive NSO?
✅ Yes!
General taxation
Spread taxed as salary income.
Sale gain taxed as either short term or long term capital gain.
General tax, reporting & legal paperwork difficulty score
🤯 🤯 🤯 🤯
Tax advantages
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).
Warning point
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.
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.
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Discover everything you need to know about taxation and reporting obligations for you and your team in
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