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Sam Ghosh Founder and SEBI Regd. Investment Adviser at Wisejay Private Limited Bangalore, Karnataka
Employee Stock Purchase Plans (ESPP)
1 answer/comment
07:15:13 AM, 10th March, 2019
  • Sam GhoshFounder and SEBI Regd. Investment Adviser at Wisejay Private LimitedBangalore, Karnataka
    Profile

    WHAT IS EMPLOYEE STOCK PURCHASE PLAN (ESPP)?

    ESPP is formal plans under which the company offers own shares to employees as part of a public issue or otherwise or through a trust. The shares are generally issued at a discount to the prevailing price



    PROCESS

    A section of employees (based on shares already held and how long the employee is employed with the company) is offered the ESPP. The employees can enrol for the ESPP during the Enrollment period. A fund is accumulated during the offering period (from the date the plan is offered to the date of purchase) through fixed payroll deductions and the shares are purchased on behalf of the participating employees at the end of the offering period. Shares are generally purchased at a discount. A Lookback price which is calculated at the minimum price of the share during the offering period can be calculated and then a discount can be applied.

    Purchased shares are subjected to lock-in for a minimum of one year as per section 22 of the SEBI (Share Based Employee Benefits) Regulations 2014. The exception is when shares are issued as part of a public issue and shares are issued at the same price of the public issue- the lock-in is not applicable in this case.



    TAX IMPLICATIONS FOR EMPLOYEES

    The discount (to the fair market price) at which the shares are issued is considered as perquisite and taxed as such.

    Short Term or Long Term capital gains is applicable when the employee decides to sell the shares.

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