FEBRUARY 2020

In this Article, we will try to understand the various provisions under FEMA with respect to Realization, Repatriation and Surrender of Foreign Exchange by a Person Resident in India.

Governed by:

Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations, 2015

Foreign Exchange:

Section 2(n) of FEMA states that foreign exchange means foreign currency and includes (i) deposits, credits, and balances payable in any foreign currency (ii) drafts, traveller's cheques, letter of credit or bill of Exchange expressed or drawn in Indian currency but payable in foreign currency (iii) drafts, traveller's cheques, letter of credit or bill of Exchange drawn by banks, institutions or persons outside India, but payable in Indian currency.

Whose Duty?

A person resident In India to whom any amount of foreign exchange is due or has accrued shall take all reasonable steps to realize and repatriate to India such foreign exchange and shall not in any case do or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing

• That the receipt by him of the whole or part of that foreign exchange is delayed
• That the foreign exchange ceases in whole or in part to be receivable by him.

Manner of Repatriation

Once a person has realized foreign exchange that is due to him, he shall repatriate the same and

• Sell it to an authorized person in India in exchange for rupees
• Retain or hold it in account with an authorized dealer in India to the extent specified by the Reserve Bank
• Use it for discharge of a debt or a liability denominated in foreign exchange to the extent and in the manner specified by RBI.

A person shall be deemed to have repatriated the realized foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any country outside India, maintained with an authorized dealer.

TIME LIMIT FOR SURRENDER OF FOREIGN EXCHANGE:

A person not being an individual resident in India shall sell the realized foreign exchange to an authorized person, within the time period mentioned below:

• Foreign exchange due or accrued as remuneration for services rendered, whether in or outside India or in settlement of any lawful obligation or an income on assets held outside India, or as inheritance, settlement or gift, within seven days from the date of its receipt.
• In all other case, within a period of 90 days from the date of receipt.

PERIOD OF SURRENDER- SPECIAL CASES:

• Any person who is an individual not a resident in India who has acquired foreign exchange under a declaration for a specific purpose and does not use it for such purpose or any other purpose that is permissible under the provisions of the Act, shall surrender such foreign exchange or unused portion of it within 60 days from the date of its acquisition or purchase by him.
• 2) Not withstanding anything contained above, if individual not a resident in India has acquired foreign exchange for the purpose of foreign travel, then the amount of unspent balance of such foreign exchange be surrendered to the authorized person as follows:
  a) Within 90 days from the date of return of traveller to India- if unspent money is in the form of currency notes and coins
  b) Within 180 days from date of return to India- in case the unspent amount is in the form of travellers cheques.

PERIOD OF SURRENDER BY RESIDENT INDIVIDUALS:

A person being an Individual resident in India shall surrender the received or realized or unspent or unused foreign exchange whether in the form of notes, coins and travelers cheques etc. to an authorized person within a period of 180 days from the date of such receipt or realization or purchase or acquisition or date of his return to India as the case may be.

EXEMPTIONS

• Possession of foreign currency - Possession of foreign currency or foreign coins up to limit prescribed by RBI is permitted - section 9(a) of FEMA
• Foreign Currency Account - Foreign Currency Account can be held and operated by such persons and within such limits as specified by RBI - section 9(b) of FEMA.
• Foreign exchange acquired before July 1947 - Foreign exchange acquired or received before 8th July 1947 or income arising or accruing thereon can be held outside India. [section 9(c) of FEMA]. If such foreign exchange is acquired as a gift or inheritance, that exchange and income arising therefrom can be held as foreign exchange in India or held abroad and need not be repatriated.
• Foreign Exchange acquired abroad - Foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts, inheritance or any other legitimate means can be held as foreign exchange in India or it need not be repatriated from abroad; subject to limits specified by RBI [section 9(e) of FEMA].
• Any other receipt specified by RBI - Any other receipt, as may be specified by RBI, can be held as foreign exchange in India or it may not be repatriated. - section 9(f) of FEMA.
• RBI to specify by issuing regulations - RBI can specify various limits by making regulations under FEMA [section 2(zd)]. Section 47 authorises RBI to make regulations. These regulations have to be notified in Official Gazette. These have to be laid before Parliament for at least 30 days. [section 48 of FEMA].

NON-APPLICABILITY OF PROVISIONS:

Provisions of these regulations do not apply to foreign exchange in the form of currency of Nepal or Bhutan.

Companies Act 2013

--CA Santhipriya S

Ease of Doing Business (EODB) Initiatives

India has jumped 14 places to be 63rd out of 190 nations in the Ease of doing Business ranking by the World Bank in its 2020 report. There have been various initiatives taken by the Government to India towards creating an easier environment to set up and run businesses in India and one such recent initiative taken is simplifying the procedures of Incorporation of a Company. Ministry of Corporate Affairs has notified and would be shortly deploying a new Web form named SPICe+ replace the existing SPICe form. In the notification issued by MCA dated 6th Feb’2020, the new procedures for incorporation will be effective from 15th of Feb’2020 and the web form is expected to be deployed in the MCA portal on the same date i.e., 15th of Feb’2020.

Since the SPICe+ is a web form, it would be much simpler than the PDF downloadable form to fill the applications, attaching the attachments, affixing the DSC and submission of the forms online. Thus, it eliminates the time consuming processes involved with the downloadable application forms for Incorporating the Company.

The SPICe+ form will have two parts, PART A for name reservation for new companies and PART B which will offer the following:

• Incorporation
• DIN allotment
• Allotment of PAN (Permanent Account Number)
• Allotment of TAN (Tax Deduction and Collection Account Number)
• EPFO Registraion (Employee Provident Fund)
• ESIC Registraion (Employee State Insurance)
• Profession Tax Registration (Mandatory only for those companies having Registered Office in Maharashtra)
• Opening of Bank Account for the Company
• Allotment of GSTIN (Only if applied by the Company)

PART A and PART B can be jointly applied for or the applicant may wish to apply for the name first, get it allotted and then proceed to apply for Incorporation using PART B. Thought the contents of the existing SPICe form and the new SPICe+ form are similar in major aspects, the filling up of the application is expected to be easier as the pre approved names and other details of the Company will be automatically pre filled to complete their application for Incorporation.
With effect from 15th February 2020, RUN service (existing web form for application for reservation of name) would be applicable only for change of name of an existing Company. For name reservations of new companies, only the SPICe+ Web form to be used effective 15th Feb’20. Resubmission of applications for company name reservation shall also be handled through the application number/Name applied for link on the new dashboard. A hyperlink will be available for the SRN/application number, so as to enable easy resubmission, wherever required
Registration for EPFO and ESIC is made mandatory for all companies incorporated from 15th of Feb’20 and hence it has to be applied and allotted along with their Company Incorporation and no EPFO & ESIC registration numbers will be separately issued by the respective agencies. Professional tax registration is made mandatory only for those Companies incorporated in the State of Maharashtra.
All new companies incorporated through SPICe+ (w.e.f 15th February 2020) would also be mandatorily required to apply for opening the company’s Bank account through the AGILE-PRO linked web form. On incorporation of the Company, the Bank account number generated through this process would be shared with MCA.

Declaration by all Subscribers and first Directors in INC-9 shall be auto-generated in pdf format and would have to be submitted only in Electronic form in all cases, except where:

• Total number of subscribers and/or directors is greater than 20
• Any such subscribers and/or directors has neither DIN nor PAN.

The form is yet to be deployed in the portal and hence the effectiveness of the form and the practical difficulties if any, shall be identified after it is deployed in the portal. Irrespective of that, it still is a great initiative by the Government as a web form would definitely reduce the time involved in filling up an application for incorporation of the Company. As we have already witnessed the effectiveness of the RUN web form for application for name reservation of a Company compared to the earlier downloadable lengthy PDF form for name application, this SPICe+ is also expected to be effective, less time consuming thereby creating an entirely simplified incorporation procedure. Also by making the EPFO, ESIC, Bank account opening mandatory through the same form, the time involved in applying for these separately is completely reduced.

TAXATION

--CA Srinidhi S

Budget 2020- Specific Highlights on Income tax reforms

Finance Minister Nirmala Sitharaman presented her second Budget in the Lok Sabha on 1st February 2020. The Budget 2020 focusses on enhancing the purchasing power of people and boosting their personal income.The Budget introduces several new schemes besides allocating new funds for the already running Government schemes such as PM-Kisan, Ayushman Bharat, Swachh Bharat Mission, and others.

Budget 2020 focuses on 3 major themes - Aspirational India; Economic Development for all &a Caring Society.The Union Budget 2020-21 has beenpresented amid an economicslowdown, coupled with rising foodinflation. Hence the budget 2020 focuses on reviving the Indian Economy in this fiscal through changes in Income Tax Slabs, taxation reforms, policy changes for Real Estate Sector, the resurgence of Automobile Sector, encourage privatization in CPSEs, boost for MSMEs, Bank reforms and so much more.

Individual taxation

Change in Residency Rules

• Currently, an Indian citizen/personof Indian origin isresident in India if:
  − He has been in India for anoverall period 365 day or morewithin four years preceding thatyear;
  − He is in India for overall periodof 182 days or more in that year This provision is now tightened byreducing the Indian citizen / personof Indian origin’s stay in India to anoverall period of 120 days or more(instead of 182 days).
• Likewise, for qualifying to be a ‘NotOrdinarily Resident’, the assesseeneeds to be a non-resident in Indiain 7 out of 10 previous years asagainst the dual conditions earliernamely
  − He has been a non-resident inIndia in nine out of ten previousyear
  − He has been in India for 729days or less in seven previousyears
• Indian citizens not liable to tax inany other jurisdiction (by reason ofhis domicile or residence) shall bedeemed to be resident in India.

Tax Relief for affordable housing[Section 80EEA]

Home buyers (not owning any otherproperty at the time of sanction ofloan) can claim deduction for intereston home loan up to INR 150,000subject to fulfilment of prescribed conditions.
This deduction is now extended forone year in the case of loanssanctioned up to 31 March 2021.

Employer contributions to retiralsin excess of specified limits nowliable to tax [Section 17(2)]

Currently, employer contribution tofollowing retirals are liable to tax onlyif:

• • Provident Fund contribution is inexcess of 12 percent of the salary
• NPS contribution is in excess of 14percent of salary for the CentralGovernment employees and 10percent of salary in any other case
• Superannuation Fund contributionis in excess of INR 150,000

Also, employee is not taxable onaccruals on such contributions.

It is proposed to introduce anaggregate monetary limit of INR750,000 in respect of employercontribution to above schemes. Anycontribution in excess of suchmonetary limit would be taxable asperquisite.Further the annual accretion on thesecontributions (in excess of monetarylimits) will be treated as a perquisite.

Dividends

• On account of the change to the dividenddistribution tax regime, additional tax of 10% onindividual shareholders abolished.
• Incidence of dividend taxation shifted to theshareholder at applicable rates (as against thedomestic company declaring dividends)
• With Holding Tax at 10% if dividend exceeds INR 5,000for resident shareholders
• With Holding Tax at 20% (plus applicable surcharge or cess) orlower treaty rate for NR shareholders
• Section 57 has been amended toprovide that other than deductionfor interest expenses, no otherdeduction shall be allowed fromdividend income or income inrespect of units of mutual fund.Also, the deduction shall notexceed 20 percent of the dividendincome.

Personal Tax Rates

The government has proposed a new income tax regime under Section 115BAC that comprises a significant change in the tax slabs rates. Taxpayers have been provided with an option whether they want to pay taxes according to the new regime or if they want to continue paying taxes according to the existing regime.

If the taxpayer has opted for thissimplified tax regime, suchtaxpayer will not be eligible forcertain deductions / exemptionssuch as:

• Chapter VIA (other thanemployers’ contribution to NPSunder section 80CCD(2) and deduction for employment ofnew employees under section80JJAA)
• Section 10 such as LTA, HRA,income of minor child, andcertain exemptions provided under section 10(14), etc.
• Standard deduction,professional tax
• Interest paid on housing loan onself-occupied house property
• Standard deductions for familypension under section 57(iia)
• Set-off of loss from houseproperty with any other heads ofincome
• Certain eligible deductionagainst business income

Such Taxpayers will also be not subjected to alterative minimum tax.

Corporate Taxation

DDT Abolished

DDT abolished, and taxability ofdividend income shifted to thehands of recipient

• Under the existing provisions ofsections 115-O and 115R of theAct, a company/mutual fund isrequired to pay DDT on the incomedistributed to shareholders/unitholders.
• It is proposed to abolish DDT ondividends declared, distributed, orpaid on or after 1 April 2020.Dividend is now proposed to betaxed in the hands of the recipientof income, i.e.. shareholders/unitholders.
• • Section 80M has been introducedto remove the cascading effect oftaxes on inter-corporate dividend.The section will allow set off onlyfor dividend distributed by the company up to one month beforethe due date of filing of return.

Rationalization ofprovisions for startups

• Proposal to defer perquisite taxation on exercise ofESOP to earlier of five years from the said date ordate of leaving of employment or the date of actualsale of shares for employees of eligible startups.
• Turnover criteria for eligible startups to qualify fortax holiday increased to INR 100 crore (from theexisting INR 25 crore)
• Flexibility provided to eligible startups to claim taxholiday for three consecutive years out of ten yearsfrom incorporation (from exiting seven years)

Tax Collection at Source (TCS)

New provisions introduced to cover remittancesmade under
The ‘liberalized remittance scheme’ of RBI orsale of overseas tour package at 5% (else at10% if no PAN/Aadhaar)
To widen the tax net, it is proposed toamend section 206C to levy TCS onoverseas remittance and overseastour package as under

• Authorised dealer (dealing inforeign exchange) receiving anamount of INR 0.7 million or morein financial year for remittanceunder LRS of RBI, shall be liable tocollect TCS at the rate of 5 percenton sum received from a buyerremitting such amount out ofIndia.
• A seller of an overseas tourpackage shall be liable to collectTCS at the rate of 5 percent on anyamount received from buyer ofsuch package.
• In both the above cases, if thebuyer does not have PAN/Aadhar,the rate of applicable TCS shall be 10 percent.




- It is proposed to amend section 206Cto levy TCS on sale of goods abovespecified limit stated below:

• A seller, whose turnover frombusiness exceeds INR 100 millionduring the immediately precedingfinancial year, shall be liable tocollect TCS at the rate of 0.1percent on consideration receivedfrom a buyer in excess of INR 5million. In non-PAN/Aadhar cases,the rate shall be 1 percent.
• The above TCS provision shall notbe applicable on certain buyers,such as government authoritiesand other buyers notified by theGovernment.
• The above amendment will takeeffect from 1 April 2020.




With Holding Tax Provisions



• Sunset clause extended up to 1 July 2023 for5% With Holding Tax rate on interest on foreign currencyborrowings, masala bonds, and certain bonds toFIIs/QFIs, etc.
• With Holding Tax on technical services (excludingprofessional services) to be reduced to 2% asagainst the existing 10%
• With Holding Tax under works contract at 2% to cover casesof contract manufacturing where raw material isprovided by related parties
• E-commerce operator to withhold tax at 1% onproceeds paid to e-commerce participant (i.e.seller); else at 5% if no PAN/Aadhaar
• E-commerce operator to withhold even if thepayment moves directly from the customer to thee-commerce participant
• No With Holding Tax for individual/HUF where sale through thee-commerce operator does not exceed INR 5 lakh
• Provisions not applicable to amount received by ane-commerce operator for hosting advertisements
• Dispensation from return filing compliance for NR(without a permanent establishment in India)earning income from royalties or fees for technicalservice on which With Holding Tax at 10% (plus applicablesurcharge or cess) is applied




Transfer Pricing



• Form 3CEB/transfer pricing report to be furnishedby 31 October 2020
• Safe harbour provision and advance pricingagreement (including rollback) amended tocover attribution of profits to a permanentestablishment (PE)
• Interest limitation rule amended to exclude interestpaid/payable on loan extended by a PE of a nonresident bank for determining tax deductibility




Tax Audit




Tax audit threshold has been increased from Rs 1 crore to Rs 5 crore provided turnover/ gross receipts in cash does not exceed 5% during the previous year. Also, payment made in the P.Y in cash does not exceed 5%. For such taxpayers, the due date for tax audit has been extended to the 31st of October from the 30th of September.





Amendment in Deemed consideration



• Section 43CA, if value adopted for the purpose of stamp duty does not exceed 110% of the actual consideration received, then consideration so received shall be deemed to be the full value of the consideration for computing profits and gains on transfer of such asset other than capital assets. Before the amendment it was 105% instead of 110%.
• Section 50C, in case of transfer of capital asset being land or building or both, if value adopted for the purpose of stamp duty does not exceed 110% of the actual consideration received, then consideration so received shall be deemed to be the full value of consideration for computing capital gains on transfer of such capital assets.Before the amendment it was 105% instead of 110%.




Rationalization of Tax deduction for donations



• Section 80GGA provides fordeduction in respect of donationsgiven to an approved researchassociation, university, college, oranother institution for specifiedpurposes.
• To further promote the agenda of digitalization and less casheconomy, the existing threshold ofINR 10,000 for cash donations hasbeen reduced to INR 2,000.
• Further deduction under section80GGA to a donor shall be allowedonly if the prescribed statement isfurnished by the donee in respectof donations received. In the eventof failure to do so, a fee or penaltyshall be levied.
• The amendment is proposed to beeffective from 1 June 2020.




TDS on income in respect of units in mutual fund




New Section 194K has been proposed to be inserted which provides that any person responsible for paying to aresident unit holder, any income inrespect of units of a Mutual Fundspecified under clause (23D) ofsection 10 or units from theadministrator of the specifiedundertaking or units from thespecified company, shall withholdtax at the rate of 10 percent, if thesuch income exceeds INR 5,000/-in a financial year.





Proposed Dispute Resolution Scheme (Vivad Se Vishwas)



• Under the proposed scheme, atax payer would be required topay only the amount of thedisputed taxes and get completea waiver of interest and penaltyprovided he/she pays by 31March 2020.
• Those who avail this schemeafter 31 March 2020 will have topay some additional amount.
• The scheme will remain openuntil 30 June 2020.
• Tax payers in whose casesappeals are pending at any levelcan benefit from this scheme.




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Trending Topics

IND AS 102 – SHARE BASED PAYMENTS





Background

Share-based payment plans have become increasingly a common mode of settlement against acquiring goods or availing services or as a component of the total employee compensation package.
In share-based payment transactions, an entity receives goods or services from an employee or any other party and grants equity instruments (equity-settled share-based payment transactions) or incurs a liability to deliver cash or other assets for amounts that are based on the price (or value) of equity instruments (cash-settled share-based payment transactions) as consideration.
Payments in equity instruments are called equity-settled share-based payments.
Payments in cash or other assets that are based on the value of the equity instruments of the entity are called cash-settled share-based payments.





Why Share-based payments?

Share-based payments are often granted to employees under the condition that the employees provide future services and that one or more specified service or performance targets are met. Therefore, the employees are motivated to make an effort to achieve the target in order to benefit from the share-based payment.
Another important reason for granting equity-settled share-based payments is to receive goods or services without affecting the entity’s liquidity. It is a mode to preserve cash in the entity.





Objective of Ind AS 102

The objective of the Standard is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. It reflectsthe effects of share-based payment transactions, including recognition of expenses associated with transactions, in entity’s Statement of Profit or Loss and Statement of Financial Position.





Types of transactions under Ind AS 102

Entities typically use share-based plans for the purpose of employee remuneration, but the scope of Ind AS 102 is much broader.
For the purpose of falling within the boundaries of Ind AS 102, it requires the exchange of equity instruments, or cash amounts based on the value of these equity instruments, with another party in return for goods or services.
Share-based payment arrangements may be used to procure goods, as well as to purchase services from employees or other parties. All such transactions are within the ambit of Ind AS 102.
Example – An entity issuing its own shares for a charity without any consideration will be covered underInd AS 102.






Other points on Scope of Ind AS 102

A share-based payment transaction also covers intra-group transaction or obligation or settlement exclusively on account of the entity receiving or acquiring the goods or services.
A transaction with an employee (or other party) in his/her capacity as a holder of equity instruments of the entity is not a share-based payment transaction, for example – rights issue.
Goods shall mean to include inventories; consumables; property, plant and equipment; intangible assets and other non-financial assets.





Strategies of Share-based payments

3 methods of accounting have been prescribed for share based payment transactions




• Equity settled share-based payment transaction
• Cash settled share-based payment transaction
• Choice between above two either with the entity or supplier of goods or services.

Equity-settled share-based payment transactions

The entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received.
If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.
An entity shall measure the fair value of equityinstruments granted at the measurement date, based on market prices, taking into account the terms and conditions upon which thoseequity instruments were granted. If market prices are not available, the entity shall estimate the fair value ofthe equity instruments granted using a valuation technique to estimate whatthe price of those equity instruments would have been on the measurementdate in an arm’s length transaction.
If the consideration received by the entity is less than the fair value of equity instruments granted, it indicates the existence of an unidentified consideration.
Example - Goods/services have been received by an entity for which it has issued its own equity sharesto the counterparty (who has supplied the goods). The value of thegoods received has been paid by using its own equity shares but the fair value of the goodsreceived are morethan the value of share issued by an entity, then some unidentifiedgoods / services will be received / or have been received. Ind AS 102 shall apply for such unidentified goods/ services.
Note – Equity-settled share-based payment transactions with non-employees are generally measured at the fair value of the goods or services received (direct measurement), rather than at the fair value of the equity instruments granted at the time when the goods or services are received.




Cash-settled share-based payment transactions:

For cash-settled share-based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period. At the date of settlement, the entity shallrecognize any changes in the fair value through profit or loss for the period.
It is a plan where entity issues rights to its employees/ suppliers where employees/ suppliers will be entitled for a cash payment in future based on equity share prices of the entity or its group.
Example – An entity issued share options to its existing employees who shall remain in service with the entity for next 5 years and the benefit shall be settled in cash of an equivalent amount of share price. The amount equivalent to the shares will be recognized over the vesting period as cost of employees because there are no conditions which are to be vested upon.




Share-based payment transactions with Cash alternatives

In case of a share-based payment transaction where either the entity or the counterparty is provided with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, the entity shall account for that transaction depending on whether a liability has been incurred by the entity or not.

When Counterparty has a choice of settlement

When counterparty has a choice of settlement for such share-based payments, then this will be treated as compound instrument which has a debt componenti.e., the counterparty’s right to demand paymentin cash, and an equity componenti.e., the counterparty’s right to demandsettlement in equity instruments rather than in cash.
The fair value of the compound financial instrument is the sum of the fair values of the two components – debt and equity.
When such alternatives are given in case of transactions with parties other than employees where fair value of goods/ services is measured directly then the difference between fair value of such goods/ services and the fair value of debt component, at the date when the goods or services are received, will be considered to be the value of equity component.
For other transactions, including transactions with employees, a separate fair value of compound financial instruments will be calculated and accordingly the values of goods/services received will be accounted. To apply this requirement, the entity shall first measure the fair value of the debt component, and then measure the fair value of the equity component – taking into account that the counterparty must forfeit the right to receive cash in order to receive the equity instrument.
For the debt component, the entity shall recognize the goods or services acquired, and a liability to pay for those goods or services, as the counterparty supplies goods or renders service, in accordance with the requirements applying to cash-settled share-based payment transactions.
For the equity component (if any), the entity shall recognize the goods or services received, and an increase in equity, as the counterparty supplies goods or renders service, in accordance with the requirements applying to equity-settled share-based payment transactions.
At the date of settlement, the entity shall remeasure the liability to its fair value. If the entity issues equity instruments on settlement rather than paying cash, the liability shall be transferred direct to equity, as the consideration for the equity instruments issued.
At the date of settlement, if the entity pays in cash rather than issuing equityinstruments, that payment shall be applied to settle the liability in full. Anyequity component previously recognised shall remain within equity.





When the entity has a choice of settlement

If the entity has a present obligation to settle in cash,the accounting would be as a liability. When there is no such obligation to pay in cash, then equity settled accounting treatment would be required.





Example – An entity issues stock options to its employees which provide entity an option to settle either in cash or by entity’s own shares. Based on the past practice of the entity, these kind of stock options have been settled in cash only, hence the entity will create a liability assuming present obligation to settle the options in cash.






Vesting Conditions

Share based payment awards generally vest upon meeting specified conditions, such as service conditions (time-based) or performance conditions (like, achieving a specified EBITDA target). These conditions affect the timing of when the expense is recognized, and in some cases, the measurement of expense. In addition, if a condition is not met, whether or not the entity may reverse previously recognized compensation expense depends on the nature of the condition that was not met. Hence classification of a condition is an important step in accounting of share-based payments.
A vesting condition is a condition that determines whether an entity receives services that entitle the employee or any other party to receive cash, other assets or equity instruments of the entity. A vesting condition is either a service condition or a performance condition.






Service Condition

Vesting condition that requires the employee or any other party to complete a specified period of service during which services are provided to the entity. If the employee or any other party, regardless of the reason, ceases to provide services during the vesting period, then it has failed to satisfy the condition. Example – An entity has issued 100 shares each to its 1,000 employees under share-based payment if they remain in the organization for next 3 years. This would be considered to be a service condition; 3 years being the period over which employee would be required to be in service as a condition.






Performance Condition

Vesting condition that requires the counterparty to complete a specified period of service and specified performance target(s) to be met while services are rendered.






performance target




Market condition – When the parameter is market driven and is based on the price (or value) of the entity’s equity instruments, it will be considered as market related conditions(like achieving a certain share price target). Example – An entity issues stock options to its employees who will serve the organization for next 2 years and till the time the share price reaches to INR 100. The target price to reach INR 100 is one of the market related condition.
Non-market performance condition – When the parameter is not market driven but linked with some internal performance/operations or activities of the entity, it will be considered as non-market related conditions. Non-market related conditions do not have any impact on market price of the shares of the entity issuing such share-based payments.
Example – An entity issued some stock options to employees with a condition that they have to remain in the organization for next 2 years and EBITA of the entity should rise to INR 10 million. Here, the EBITA target is non-market related condition.






Non-Vesting conditions

Such conditions which do not have any impact on eligibility to have share-based payments. It can be defined as conditions which are other than vesting conditions.
Example – An entity issued some stock options to its employees wherein they are required to serve minimum period of next 2 years and from the end of 2nd year there will further be waiting time till next 1 year within which the entity should achieve revenue of INR 100 million. However, if an employee leaves the entity after the end of 2nd year then the employee will not lose its entitlement to get such share-based payments. In this case, the condition of achieving revenue target is a non-vesting condition.
Example – An entity decided to issue bonus amount to certain key employees for their past services based on share price of the entity. The amount equivalent to the shares will be recognized immediately as cost of employees because there are no conditions which are to be vested upon.






Recognition Principles

An entity shall recognize the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received.
If the goods or services do not qualify for recognition as assets, they shall be recognised as expenses.






Importance of Grant Date

The date at which the entity and another party (including an employee) agrees to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement.
At grant date the entity confers on the counterparty the right to cash, other assets, or equity instruments of the entity, provided the specified vesting conditions, if any, are met. If that agreement is subject to an approval process (for example, by shareholders), grant date is the date when that approval is obtained.
It is to be noted that the fair of equity instruments shall be measured at the grant date.
Example – Employees have not yet given his/her consent either implicitly or explicitly. However, entity has taken approval of the agreement in its General Meeting. As the consent has not been obtained by an employee, grant date cannot be determined.
Example - Employees have agreed to the terms implicitly/ explicitly. However, the approval process is under finalization. Even when the employee/ counterparty has agreed to the terms but approval process is still not complete, hence the grant date shall be the date when approvals are obtained.
Example – If the terms or conditions mentioned in the agreementare based on some subjective conditions in future, then the agreement date cannot be treated as the grant date.The terms or conditions of the agreement must be objectively defined and should not be based on subjective outcome. Mutual understanding is crucial which essentially means that all terms/ clauses and calculation related to the equity prices must be clear and objectively defined.






Disclosure Requirements

Ind AS 102 requires the following disclosures in the Financial Statements




• Type and scope of agreement existing during the reporting period.
• Describing general terms & conditions of each type of share-based payment plans.
• The number of weighted average price of share option as outstanding with a movement ofgranted, vested, expired, exercised, cancelled and closing balance of share-based paymentplans.
• The average share price of exercised options.
• The range of exercise prices and weighted average remaining contractual life of optionsoutstanding at the end of reporting period.
• The valuation method used to estimate the fair value.
• The impact on Statement of Profit and Loss and Balance Sheet for such share-basedpayments.