Online food delivery platform Swiggy is buying back $50 million (₹4 billion) worth of shares from 2,000 employees as part of its performance-based employee stock option plan (ESOP).
This move aligns with their 2021 announcement to reward employees based on performance in 2022 and 2023. This is the fourth such buyback since 2018, with the size increasing each time. The buyback also includes eligible employees from Dineout, which the company acquired in 2022.
An entry into the stock market
ESOPs are increasingly popular in India among both local and international companies. An ESOP is a program where employees are given the option to buy company shares at a set price (the ‘strike price’) within a specified period. These options typically have a vesting period and an exercise window. Once exercised, employees become shareholders and may profit if the stock’s price exceeds the strike price.
The aim of stock options is to reward and give employees an opportunity to create wealth. Liquidating their ESOPs also enables employees to plan their cash flow and investments, ultimately empowering them to benefit from their own company’s stocks. This opens up the possibility for employees to participate in the stock market as individual retail traders.
Individual traders are generally trading stocks through reputable online platforms due to a variety of factors. First, online trading platforms are easily accessible through computers and smartphones. This accessibility allows individuals to trade on the go and eliminates the need to visit physical brokerage offices.
Reputable online trading platforms also offer a high level of security by complying with the Payment Card Industry Data Security Standard (PCI DSS), which safeguards traders’ financial data. Additionally, the range of instruments on online trading platforms is appealing to those seeking to implement different trading strategies and explore opportunities in a dynamic and ever-changing market environment.
For new traders interested in diversifying their portfolios, online trading platforms also provide access to a vast selection of stocks, including those listed on major stock exchanges such as Amazon, Apple, Nike, and Tesla.
Issues and concerns over ESOPs
The rise in popularity of ESOPs within Indian startups has raised some concerns regarding proper taxation. The Budget 2020 amendment altered taxation rules for eligible startup ESOPs, deferring TDS (tax deducted at source) to certain events. Tax rates for capital gains depend on the holding period and the listing status of shares. Losses can be carried forward, and tax treatment varies for listed and unlisted shares, including foreign holdings.
Aside from this, GST authorities are also investigating cases where Indian subsidiaries allocate shares of foreign parent companies to employees through ESOPs and employee share purchase plans (ESPPs). Indian tech sector subsidiaries face this issue in GST audits, with authorities arguing that the obligation to provide shares rests with the Indian subsidiary. However, many companies choose to fulfil this through a foreign entity, making it an import of service subject to 18% GST.
Such is the case with ABC India. A previous report from The Times of India found that this assurance, which is an incentive presented to Indian employees, should be executed by ABC India. However, fulfilment of this incentive was done through ABC International, a foreign company. GST authorities noted that the financial service was technically imported in order to follow through with their obligation to employees. As such, authorities concluded that the financial service falls under HSN code 9971 and is subject to tax under reverse charge at the hands of ABC India.
Tax experts argue that ESOPs are part of salary and outside the scope of GST, but authorities demand tax when amounts are cross-charged from foreign to Indian entities. Some Indian subsidiaries are in litigation stages, seeking exceptions or clarifications. Hopes are for resolution in upcoming GST council meetings.