The Hindu Business Line : Chamber plea to relax ESOP norms for IT cos

INDIA Inc has urged the Government to adopt a more liberalised policy for the information technology (IT) companies for issuing Employees Stock Options (ESOPs). As per Finance Ministry guidelines, an Indian company cannot issue American depository receipts-linked (ADR) stock options at a discount more than 10 per cent to the market price of the company's shares, at the time of the issue.

This is not in line with the Securities and Exchange Board of India's (SEBI) guidelines on ESOPs, a Federation of Indian Chambers of Commerce and Industry (FICCI) official said. The SEBI guidelines for Indian listed companies issuing stock options (including ADR-linked stock options), do not limit the percentage of discount - provided that SEBI's accounting policies on ESOP disclosures are followed , he explained.

``This would mean that the restrictions under the Finance Ministry guidelines would hamper only Indian IT companies, when all other companies would need to satisfy only the SEBI's guidelines on ESOP. This also goes against the very spirit of the Government policy which was to enable Indian IT companies to have a liberalised policy vis-à-vis ESOPs,'' the chamber has said in its submission to the Central Board of Direct Taxes (CBDT).

To overcome this problem, FICCI recommended an appropriate amendment in the guidelines to enable companies to issue ADR-linked stock options even at a discount to market value. The issue of such options, however, must comply with the accounting policies stipulated in Schedule 1 of SEBI's ESOP guidelines, the chamber said.

The chamber has also stated that the legal and regulatory environment should help in fostering Information Technology Enabled Services and Business Process Outsourcing services. , Considering the potential benefits from this sector, the chamber submitted that the definition of the expression `industrial undertaking' under Section 72A of the Income-Tax Act may be broadened to include BPO and ITES.

Further, the chamber has also suggested that the benefits of the Section 10A/10B of the I-T Act may be allowed to be passed on to `supporting software developer' or `software manufacturer'.

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