EIP is an employee benefit plan under which an employee has the right to acquire equity at a discounted value without any underlying obligation to do so.
Any EIP should meet the tax and regulatory compliance requirements. This includes devising an appropriate plan, ensuring that the EIP is compliant with the current provisions of income tax act, company law, foreign exchange regulations, Securities and Exchange Board of India (SEBI), regulations thereunder, etc. These issues need to be specifically addressed wherein equity rewards of an overseas parent company are being given to the employees of the Indian subsidiary/office or where stock options of an Indian company are given to the employees of an overseas subsidiary/office.
It is important to that EIPs are attractive for employees, simple to understand and administer and also that they convey the underlying message of the employer. In recent times, accounting implications of issuing EIPs have undergone substantial changes and have become a critical factor in the decision-making process.
Appropriate planning, a focussed approach and assistance during the planning and implementation stages can help avoid compliance defaults and facilitate putting a tax efficient methodology in place.
