ESOP
Also known as: Employee Stock Options, Stock Options
Employee Stock Option Plan - A benefit plan giving employees the right to buy company shares at a predetermined exercise price.
Detailed Explanation
ESOP (Employee Stock Option Plan) gives employees the right to purchase company shares at a fixed exercise price, typically below market value. ESOPs vest over time and create perquisite tax liability when exercised (FMV minus exercise price). Popular in startups as equity compensation. Taxation occurs at exercise (perquisite) and sale (capital gains).
Related Calculators
Related Terms
RSU
Restricted Stock Units - Company shares granted to employees that vest over time and are taxed as salary when vested.
FMV
Fair Market Value - The price at which shares would trade between willing buyers and sellers in an open market.
Perquisite Tax
Tax on employment benefits valued in money, including ESOP exercise gains and RSU vesting, taxed as salary income.
Exercise
The act of purchasing ESOP shares by paying the exercise price, triggering perquisite tax liability.
Vesting
The process by which employees earn rights to ESOPs or RSUs over time, typically following a predefined schedule.