ESOP Taxability in case of death of Employee

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....SOP Taxability in case of death of Employee<br> Query (Issue) Started By: - Nirrmit Dated:- 29-9-2025 Last Reply Date:- 13-12-2025 Income Tax<br>Got 1 Reply<br>Income Tax<br>Hi, Any views that in case of death of employee how the perquisite value and perquisite tax on ESOP vested with him will be treated in hands of nominated member. Will it be taxable at the time of exercise by nominated member ....

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....or sale by nominated member and under which head of income Thanks in advance for your answers&nbsp;&nbsp; Reply By Ryan Vaz: The Reply: Issue Summary In the event of an employees death, ESOPs (vested or accelerated) exercised by a nominee/legal heir are generally treated as "Income from Salaries" (Perquisite) in the hands of the deceased (filed by the legal heir), taxable at the time of exerci....

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....se, while the subsequent sale of shares by the nominee triggers "Capital Gains". Applicable Law * Section 17(2)(vi) of the Income-tax Act, 1961: Defines the value of specified security/sweat equity shares allotted (ESOPs) as a "Perquisite" taxable under "Salaries." * Section 159 (Legal Representative): States that the legal representative constitutes the assessee for the deceased and is liabl....

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....e to pay any sum the deceased would have been liable to pay if they had not died. * Companies (Share Capital and Debentures) Rules, 2014: Mandates that in case of death, options granted to an employee vest in the legal heir/nominee. Short Practical Answer The tax liability arises at two distinct stages: * At Exercise (Nominee exercises the option): The difference between the Fair Market Valu....

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....e (FMV) and the Exercise Price is treated as Perquisite income. Since the option was earned due to the deceaseds employment, companies typically deduct TDS u/s 192 treating it as Salary of the deceased. The legal heir must file the deceaseds tax return (as a Legal Representative) to report this income and claim the TDS credit. * At Sale (Nominee sells the shares): The profit (Sale Price minus FM....

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....V at exercise) is taxable as Capital Gains in the hands of the nominee/legal heir directly.<br> Discussion Forum - Knowledge Sharing ....