Circular No. 710 — 202. Taxability of the perquisite on shares issued to employees at less than market price

What this is

Circular No. 710 was issued by the Central Board of Direct Taxes on 24 July 1995. Its subject is 202. Taxability of the perquisite on shares issued to employees at less than market price.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Sets out when shares issued to employees below market price are a perquisite and how the value is worked out. The benefit is a perquisite within section 17(2)(iii). Four situations are separated. Where shares held by the Government are transferred to the employee there is no perquisite, because there is no employer and employee relationship between the Government as transferor and the transferee. Where the company offers shares to employees at the same price as to other shareholders or the public, there is no perquisite. Where the employer offers them to employees at a price lower than to other shareholders or the public, the difference between the two prices is taxed as a perquisite. Where the shares are offered only to employees, the perquisite is the difference between the market price on the date the employee accepts the offer and the price at which they are offered.

Why it was issued

Chief Commissioners and corporate assessees had been asking the Board for a clarification on the taxability of this benefit.

Who it reaches

Employees allotted shares at concessional prices
Companies running employee share offers
Employees taking shares in a Government disinvestment transfer
Employers deducting tax on salary perquisites

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.17	s.16, s.17, s.18

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

202. Taxability of the perquisite on shares issued to employees at less than market price
1. Chief Commissioners and corporate assessees have been seeking clarification regarding taxability of the perquisite on shares issued to the employees at less than market price.
2. The matter has been considered by the Board. The benefit does amount to a perquisite within the meaning of clause (iii) of sub-section (2) of section 17 of the Income-tax Act, 1961. The various situations in this regard have to be dealt with as under :
(i ) where the shares held by the Government have been transferred to the employee, there will be no perquisite because the employer-employee relationship does not exist between Government and the employee (transferor and the transferee);
(ii ) where the company offers shares to the employees at the same price as have been offered to the other shareholders or the general public, there will be no perquisite;
(iii) where the employer has offered the shares to its employees at a price lower than the one at which the shares have been offered to the other shareholders/public, the difference between the two prices will be taxed as perquisite;
(iv) where the shares have been offered only to the employees, the value of perquisite will be the difference between the market price of the shares on the date of acceptance of the offer by the employee and the price at which the shares have been offered.
Circular : No. 710, dated 24-7-1995.

What to watch

The comparison changes with the facts: against the public offer price where there is a public offer, and against market price where the offer is to employees alone.
In an employees-only offer the valuation date is the date the employee accepts the offer, not the date of allotment or of any later listing.
An offer to employees on the same terms as to the public produces no perquisite at all, so the terms of the offer document matter.
The taxation of employee share benefits has since been dealt with by express statutory provisions with their own valuation rules and dates, so this describes the position for the years it governed.

Where you meet it

In a salary assessment or a section 201 proceeding where a concessional share allotment was not brought to tax as a perquisite.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

A company offers shares to the public at Rs. 100 and to its employees at Rs. 60. The perquisite for each share is Rs. 40. If instead the shares were offered only to employees at Rs. 60 and the market price on the date the employee accepted the offer was Rs. 150, the perquisite is Rs. 90 a share.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 133/2025 [F. No. 370142/27/2025-TPL] / G.S.R 555(E) — Ministry of Finance 18 August 2025
Circular No. 3/2025 — Income tax deduction from salaries during the financial year 2024 25 under section 192 of the income tax act 1961 20 February 2025
Circular No. 24/2022 — Government of INDIA 7 December 2022
Notification No. 90/2022 [F. No. 370142/31/2022-TPL (Part-2)] / SO 3703(E) — Ministry of Finance 5 August 2022
Circular No. 4/2022 — Government of INDiA 15 March 2022
Notification No. 11/2021 [F. No. 370142/52/2020-TPL] / GSR 155(E) — Ministry of Finance 5 March 2021

← Circular No. 712 · Circular No. 711 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.