ESOPs have been included in the purview of Perquisites under Section 17 (2). The value of the ESOPs determined on the date of exercise, as the difference between the fair market value of the shares as on the date of exercise and the exercise price, would be taxable as a perquisite in the hands of the employees.

Explanatory circular on Fringe Benefit Tax arising on allotment or transfer of specified securities or sweat equity shares.

The Finance Minister has amended the provisions of levying FBT on ESOPs on May 3, 2007 vide the Finance Bill 2007.

The Institute of Chartered Accountants of India (ICAI) has released a Guidance Note on Accounting for Employee Share - based Payments, which has come into effect from the 1st of April 2005.

On December 16, 2004, The Financial Accounting Standards Board (FASB) has issued statement Number 123 (revised 2004) - Share Based Payment. Statement 123 (R) requires all entities to recognize compensation expense as per the Fair Value Method.