Employee Stock Option Plane (ESOP)

Employee Stock Option Plan or ESOP is an Employee Stock Ownership Policy through which any employee can buy share of the company where is working currently. In some specific cases or if company is offering its services in multiple countries then it offers this type of facility to its Indian employee. As per the regulation and policy of this scheme, company provides the facility to employee to buy the shares in fewer prices than its market price. Sometimes as per the current salary of the play the vital role in allocation of share and its value.


Why ESOP?

There are several reasons that make esop much valuable and important not only from employee point of view but from employer point of view too. This concept came into market as solution for small scale companies who prefer to allot share to their valuable employee than offering them higher package. This kind of facility not only boosts the morale of employee but boost their performance towards company target so that both employer and employee can get huge success. Sometimes these factors depend on long term commitment of employee towards that company.


ESOP Tax Implications

a. No tax for vested options.
b. Zero tax policy in offers provided by the company.
c. If company is located in any other country then if company sales share then amount will be credited in account of employee and this amount will be short term benefit for employee. If any tax will be deducted from the account of that employee too.
d. If employee sale his share within one year then as per policy 15% amount will be deducted from account of respective person.
e. Other tax will be imposed as per the provision and protocol of this policy.


ESOP Benefits from Companies

1. Creates Employee Benefits: these policies boost interest of employee towards company and makes things much encouraging for them. Apart from this ESOP policy help company to save their income tax. In case of public sector organization this policy is one of the best ways of saving and in case of private sector it belongs to saving via stock offered by the company.
2. Buying Share of Owner: Under this policy if owner of the company want to sale his share then employee can buy them as per their base price. Under this policy companies can borrow loan as well as may use this policy to save their tax.
3. Money Borrowing Becomes Easier: Whenever company want to borrow amount then share of current owner is used as credit to get loan easily. Amount invested under ESOP will fall under tax exemption amount and it will be included in principle amount and interest rate.


Disadvantage of ESOP

1.Benefits ratio is not fixed and may wary with time.
2. Whenever the policy modified by the respective company then invested amount and marginal amount will vary till the final decision take by company against these provisions.
3. ESOP is kind of responsibility of company that need to fulfill and there is no provision regarding paying premium. Its company duty to handle the all required processing to make this investment beneficial form all prospect.
4. ESOP is kind of risk taken by the company to promote their business and employee growth.


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