The ITAT upholds the fair market value as the cost of acquisition under Section 49(2AA) for NRIs calculating capital gains on ESOPs, providing significant relief for foreign investors.
ITAT Confirms FMV as Cost of Acquisition for NRI ESOPs
The Income Tax Appellate Tribunal (ITAT) has upheld the position that the fair market value (FMV) of shares acquired under Employee Stock Option Plans (ESOPs) will be treated as the cost of acquisition for Non-Resident Indians (NRIs) when computing capital gains under Section 49(2AA). This ruling advocates for fairness in taxation for international investors in ESOPs.
The tribunal articulated that this approach aligns with the policy objective concerning the taxation of capital gains and ensures that NRIs are not disadvantaged by domestic tax interpretations surrounding ESOPs. The consideration of FMV provides a standardized basis for determining gains and losses.
This judgment is significant for NRIs involved in ESOPs, aiding them in clear and equitable tax outcomes. Practitioners should be proactive in advising clients regarding implications of this ruling in their capital gains calculations.
Citations
- NRI ESOPs (2026) ITAT
