I am an NRI. How will my ESOPs from an Indian company be taxed? | Mint

I live and work in Dubai for a startup whose parent entity is in India. As part of my remuneration package, I had received employee stock options (ESOPs), which I exercised last month after a two-year vesting period. Will I be taxed for this in India since they are Indian company shares?

– Name withheld on request

I understand you are a non-resident for tax purposes under the Income Tax Act, 1961, that your employment is with a company based in the UAE, and that you have served your vesting period in the UAE. In situations like this, it is common for a parent company to create a global employee stock ownership plan, which allows employees of its subsidiaries (including those based in different countries) to be eligible to receive its shares.

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However, it is important to first determine the jurisdiction where your employment income is liable to be taxed. In your case, since your employment is in the UAE, and you have worked there during the vesting period, any income arising from the allotment of the Indian parent company’s shares will be treated as income accrued in the UAE and not in India. However, if you received the shares in your Indian demat account, it could be considered income received in India.

Even so, you may enjoy benefits under the India-UAE Double Taxation Avoidance Agreement (DTAA). Under this agreement, employment income is taxed in the country of residence unless employment is exercised in the other country. In your case, since you have exercised your employment solely in the UAE, it will only be taxed there. Therefore, aren’t liable to pay Indian taxes on your stock options.

Regarding the potential future sale of these shares, capital gains from such a sale are taxable in India as the shares are those of an Indian company. Depending on your residential status at that point, you may be eligible for benefits under the DTAA.

Harshal Bhuta is a partner at P. R. Bhuta & Co. Chartered Accountants.