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I-T lens on ESOPs of unlisted cos

Our Bureau

NEW DELHI, July 2

THE Finance Ministry has made it mandatory for unlisted companies issuing stock options to their employees to indicate the basis of valuation of the shares to the Chief Commissioner of Income Tax holding the jurisdiction of the company in the guidelines on ESOP. Preferential tax treatment will be accorded if the tax authorities are satisfied with the valuation.

The Government's guidelines will apply to all companies -- listed and unlisted as opposed to the guidelines formulated by SEBI in 1999 which was only applicable to listed companies.

The shares in the stock-based incentive plans may be shares of a subsidiary or holding company of a qualifying company in India or outside, according to the CBDT. The meaning of shares will include securities convertible into equity shares and also ADRs and GDRs or other receipts representing underlying equity shares.

Officials said that the guidelines are ``general'' in nature. The rules will be finalised and notified later. Companies issuing shares under stock-based incentive plans will also be required to specify the pricing formula on the basis of which shares bei ng allotted to the employees. The price, however, should not be below the face value of the shares.

The guidelines make it incumbent upon companies to specify other particulars -- the number of shares to be issued, class of employees which would be entitled to participate in the scheme, the number of options to be issued to each employee and the value to which such stock can be prescribed alongwith the prescribed time for ``grant'' or ``exercise'' of the option.

Companies would also be required to indicate the manner of obtaining approval of shareholders and the lock-in period of such shares from the date of option or vesting of offer or exercise under such scheme or plan to the point of granting such shares as the case may be.

The SEBI guidelines had stipulated a minimum lock-in period of one year between grant of options and vesting of options.

Conditions relating to restriction on non-transferability of such shares would have to be specified.

Every company issuing shares under the stock-based incentive plans to its employees would be required to file particulars of the scheme with the Chief Commissioners of Income-Tax having jurisdiction of the company within six months of the date of issue o f the guidelines or after six months of the previous year of the effective date of the scheme or plan, whichever is later.