'If it is a fringe benefit, then it has to be taxed'

New Delhi: Employee Stock Options or Employee Stock Ownership Plan (ESOP) are a fringe benefit and must be taxed, Finance Minister P Chidambaram has said in an exclusive interview to Raghav Bahl, MD of Television 18 Network.

But Chidambaram, who presented the Union Budget 2007 on Wednesday, held out some hope by saying “the rate and method of tax calculation is still to be decided”.

Raghav Bahl: Employee Stock Options are a capital asset, they are a wealth-creating asset and you are taxing them like income. Which canon of economic thinking can ever justify that?

P Chidambaram: Let me ask you a very simple question. Is ESOP a fringe benefit or not?

Raghav Bahl: Yes, okay, conceded. It is a transfer of remuneration from the company via a capital asset.

P Chidambaram: Is it a fringe benefit or not?

Raghav Bahl: Yes

P Chidambaram: If it is a fringe benefit, then it has to be taxed. Now I have not yet told you how are we going to calculate it and how we are going to tax it. All that will come in the rules.

All that we have said that ESOP is a fringe benefit and I am extending fringe benefit tax to ESOP. You will have to wait to see how we determine the value of ESOP, how we tax it. All that has to be announced when we come up with the details.

Raghav Bahl: Therefore, the media who seem to be suggesting that 34 per cent is going to be the rate of taxation on the gains realised on the date of excising of ESOPs has got it wrong?

P Chidambaram: I don’t whether it is wrong or right, all I know that at this moment it is completely premature because I have not seen the detailed calculations yet. So how could the media claim to know what it (the tax rate) is.

In the interview, Chidambaram denies allegations that his new Budget has maintained status quo and has not been bold.

(Watch the full interview on CNN-IBN at 2030 hours IST, Thursday.)