Budget 2026: Tax experts demand clarity on taxation of stock options for cross-border employees

Union Budget 2026

• India's ESOP taxation unclear for employees with cross-border work history.
• Experts urge Budget 2026 to clarify ESOP tax rules for mobile professionals
• Expatriates and returning Indians face disputes and stress due to lack of guidance.

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For many professionals, Employees Stock Ownership Plans (ESOPs) are a key part of their compensation and often their biggest tax worry. This becomes even more complicated for employees who have worked both in India and overseas before exercising their ESOPs. As Budget 2026 approaches, taxpayers caught in this cross-border maze are seeking clarity on how much of their stock option income is actually taxable in India.

How ESOPs are taxed in India

Employee stock options are taxed when they are exercised. The taxable value of an ESOP is computed as the difference between the fair market value (FMV) of the shares on the date of exercise - or the value determined by a merchant banker within six months prior to the exercise date - and the exercise price paid by the employee. This amount is treated as a perquisite and taxed under the head ‘salary’.

What it does not spell out is how this income should be treated when the employee earned those options while working partly outside the country. For many expatriates and returning Indians, that silence has translated into disputes and uncertainty at the time of assessment.

Employee stock options typically vest over several years and are linked to continued employment. In cross-border cases, this means the benefit often relates to services performed in more than one country. Despite this, tax assessments frequently hinge on where the employee is based at the time of exercise, rather than where the work tied to the stock options was actually done.

A Deloitte budget expectation report points out that the absence of clear apportionment rules has led to inconsistent treatment by tax officers. In some cases, employees have faced demands on the full ESOP gain in India even when a substantial part of their service period was spent overseas.

“Clarity is crucial,” said Nupoor Maharaj, Advocate, Delhi High Court & Supreme Court of India, calling for a more predictable framework for ESOP taxation and steps to reduce avoidable litigation.

The issue has become more prominent as global assignments and remote work arrangements increase. Professionals often move jurisdictions multiple times between grant and vesting, making it difficult to pin ESOP income neatly to a single country. Employers, too, face challenges in deciding how much tax to withhold in the absence of specific guidance.

Residential status has added to the confusion. While residents are taxed on global income and non-residents on India-linked income, there is no standard approach to determine how much of an ESOP gain should be attributed to Indian services. As a result, outcomes can vary widely depending on facts, documentation, and interpretation.

Priyal Goel Jain, Partner and NRI Tax Expert at Dinesh Aarjav & Associates, said the lack of clarity exposes employees to overlapping tax claims and creates unnecessary stress for those returning to India after overseas stints.

Tax experts believe Budget 2026 should address the issue without major legislative changes. Deloitte has suggested that the Central Board of Direct Taxes issue administrative guidance laying down a clear method to allocate ESOP income in cross-border situations, along with documentation norms for employees.

Such a move, experts say, would reduce disputes and bring much-needed certainty for globally mobile professionals at a time when stock-based compensation has become central to executive pay and startup hiring. As India positions itself as a global talent hub, unresolved questions around ESOP taxation risk are becoming a friction point.