Received ESOPs From Foreign Company? Small Compliance Mistake Can Cost You Rs 10 lakh Penalty:

Received ESOPs From Foreign Company? Small Compliance Mistake Can Cost You Rs 10 lakh Penalty Many salaried professionals in India receive Employee Stock Options (ESOPs) from foreign companies. But did you know that a small compliance mistake can result in a huge penalty from the income tax department? A taxpayer who has received ESOPs from his Indian employer in a US-based parent company is required to report the same in the Foreign Assets schedule (Schedule FA). The reporting is mandatory even if you are simply holding the asset or have sold the asset on the same day and paid 100% tax.

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Non-Disclosure in Schedule FA

If you own any foreign asset, even for one day, the law requires you to disclose it in the Schedule FA of the ITR. Under the Black Money Act, 2015, this disclosure is mandatory. Non-disclosure of a foreign asset invites penal action under the Black Money Act, 2015.

Penalty for Non-Disclosure of Foreign Assets

If you do not report a foreign asset, it can attract a flat penalty of Rs 10 lakh, even if you had paid taxes on it. It does not matter how long you held the asset or if it was received from a legal source. This rule is applicable to all Residents and Residents and Ordinarily Residents (ROR).

Finance Act 2024

From October 1, 2024, the government has given some relief to the taxpayers. If the total value of such movable foreign assets, including the property, is up to Rs 20 lakh, then the penalty of Rs 10 lakh will not be applicable.

Why ESOPs Are Hidden Trap?

No matter if the shares are sold immediately, if they were held in a foreign demat account, they must be disclosed as "Foreign Assets" in ITR’s Schedule FA. The tax department can match global data with your return by using automatic information sharing (CRS/FATCA). Therefore, missing foreign assets can easily be detected.

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What Should Taxpayers Do?

Taxpayers must inform their Chartered Accountant about all foreign ESOP allotments, even if these were sold right away. Additionally, make sure that all the data filled in Schedule FA is correct. CAs and tax professionals should also ask clients clearly about foreign shares and accounts and ensure that Schedule FA is correctly reported.