Guideline for Fair Valuation of shares to be issued under ESOP & Sweat Equity

Dear All,

Income Tax Department, Ministry of Finance has come out with guideline for valuation of shares to be issued under the ESOP Scheme and Sweat equity route vide Notification No. 264/2007, dated 23-10-2007.

According to this notification, the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option vests with the employee, shall be determined as follows.

In the case of Listed Company:

On the date of the vesting of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange:

Provided that where, on the date of vesting of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share:

Provided further that where, on the date of vesting of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be -

(a) the closing price of the share on any recognised stock exchange on a date closest to the date of vesting of the option and immediately preceding such date; or

(b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of vesting of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.

In the case of Unlisted Company:

In a case where, on the date of vesting of the option, the share in the company is not listed on a recognized stock exchange, the fair market value shall be such value of the share in the company as determined by category I merchant banker on the specified date.

Unlisted Companies ESOP Scheme is subject to compliance of ESOP IT Notification issued in the year 2001; Click here for the same - http://www.box.net/shared/p16eyrbkrl

Also you can access relevant notification on below link;

fn=/DitTaxmann/Notifications/IncomeTaxAct/2007/Notif264_2007.htm

your views are solicited on this guideline.

Thanks & Regards

Alagar