This post summarises key Indian tax and regulatory consideration where shares of a foreign parent or overseas group company are issued directly to employees of its Indian subsidiary or associated enterprise.

1. TDS obligation:

The value of ESOPs is treated as a salary perquisite under Income tax Act, and the Indian employer is responsible for withholding tax, even where the shares are issued by the foreign parent, subject to the exact employment and payroll structure. The taxable value is the fair market value of the shares on the relevant taxable date, less the exercise price or amount, if any, paid by the employee.

2. Corporate tax deduction

Where the foreign parent recharges the Indian subsidiary for the share-based compensation cost, the Indian company may claim a deduction based on judicial precedents. A pure cost-to-cost reimbursement with no income element may support a defensible no-withholding position.

3. Transfer pricing

An ESOP cross-charge between associated enterprises constitutes an international transaction and should be reported as per transfer pricing provisions. The documentation should support whether the amount is a pass-through cost reimbursement or includes a charge for services.

4. GST

CBIC has clarified that where the Indian subsidiary reimburses the foreign holding company on a pure cost-to-cost basis for shares issued to employees, no GST applies. However, any additional fee, markup, commission, or facilitation charge may be treated as consideration for a service and may attract GST in India under reverse charge.

5. FEMA / RBI

Offshore ESOPs for Indian resident employees are governed under the Overseas Investment Rules and Regulations. The Indian employer is generally required to file Form OPI through the authorised dealer bank within 60 days from the end of the half-year. Any LRS, remittance, or employee-level compliance analysis should be made structure-specific.