Sweat Equity Shares means shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to the employee shall be taxable as a perquisite in the hands of the employees.

The value of specified security or sweat equity shares shall be the fair market value of such security or shares as reduced by the amount actually paid or recovered from the employee in respect of such security or shares, on the date on which the option is exercised by the employee.

Valuation of security or shares being a share in the company:

(a) Fair market value  where the shares are listed on a recognised stock exchange:

• Where the share in a company is listed on a recognised stock exchange, on the date of the exercising of the option, the fair market value shall be the average of the opening price and closing price of the share on the said stock exchange on such date.
• Where the shares are listed on more than one recognised stock exchange, on the date of exercising the option, the fair market value shall be the average of opening & closing price of the shares on the recognised stock exchange which record the highest volume of trading in the shares.
• Where there is no trading in the shares on any recognised stock exchange, on the date of exercising the option, the fair market value shall be:

(i)           the closing price of share on any recognised stock exchange on a date closest to exercising the option and immediately preceding such date; or

(ii)         the closing price of share on a recognised stock exchange which record the highest volume of trading in such share, if the closing price is recorded on more than one recognised stock exchange, on the date closest to exercising the option and immediately preceding such date.

(b) Fair market value  where the shares are not listed on any recognised stock exchange:

Where the share in a company is not listed on any recognised stock exchange on the date of the exercising of the option, the fair market value shall be such value as determined by a merchant banker on the specified date.

Valuation of security or shares not being an equity share in the company:

The fair market value of any specified security or, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.

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