Why MNC employees with Esops are on taxman's radar

Employees have to report all stock options exercised by them in the income tax returns

- Shipra Singh

The Bangalore-based IT professional was shocked. He had received a summons from the tax department, demanding an explanation for his failure to report €22 deposited in his bank account in Germany. The engineer, who did not want to be identified, claimed he had never opened an account in that country. “After running from pillar to post, I realized that this had happened when I left my previous company here in 2017. The employee stock options offered to me by the parent company in Germany was automatically sold off when I quit the firm and the balance €22 owed to me was transferred to an account opened in my name and managed by a brokerage there," he said.

On visiting the IT office, tax officials informed him that high value transactions of around €20,000 (about ₹18 lakh) were done in this account the same year and this would be scrutinised under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.This transaction, however, was the proceeds of the automated share sales. Yet, he was not aware that he had to declare the stock options as foreign assets.

This is not a standalone case. Many employees of multinational companies (MNCs) who have been allotted Esops by the parent company located outside India are on the taxman’s radar. Esops, restricted stock units (RSUs) and dividend income from such shares are considered foreign assets but many employees fail to report them in their income tax return (ITR).

“Prima facie, a summons can be serious as taxpayers are asked to physically report to the tax office for questioning," said Prakash Hegde, a Bangalore-based chartered accountant.