As reported in our Alert of 6th March 2007, on 28th February 2007, the Finance Minister of India delivered the India Budget Proposals for the tax year beginning 1st April 2007 (2007/08). While opening the debate in the Lower House of the Parliament on 3rd May 2007 on these proposals, the Finance Minister tabled a few amendments to the original proposals. The amendments include a modified proposal on Employee Stock Option Plan (ESOP) taxation. This Alert seeks to highlight the modifications. These modified proposals, subject to any further amendments as a result of the Parliamentary debate, will become law once it is passed by both houses of the Parliament and the President gives his assent.

Key issues:

• From 1st April 2007, employers are liable to pay Fringe Benefit Tax (FBT) on ESOP gains. The FBT due will now be computed with reference to the vesting date rather than exercise date as previously proposed.
• Employers will also now be entitled to recover the FBT paid from the relevant employees.