The much-criticised fringe benefit tax (FBT) on employees stock options (ESPOs) will stay, but employers could get some marginal relief with the government changing the timing for calculation of the tax.

Finance Minister P Chidambaram on Thursday announced that FBT on ESOPs would be calculated at the time of vesting the options to the employees and not at the time of allotment as was earlier proposed in the Budget.

"FBT on ESOPs will stay. . . this is a worldwide practice. However, we are introducing some changes and the fair market value would now be determined at the time of vesting of ESOPs," Chidambaram said during the debate on Finance Bill in the Lok Sabha.

The Budget had proposed that the fair market value of the fringe benefit would be determined in accordance with a prescribed method, on the date of exercise of the option.

It had proposed to include any specified security or sweat equity shares allotted by a company to its existing or former employees within the ambit of FBT.

However, this has been changed and the fair market value would now be determined when the company entitles a employee to get ESOPs at any later date.

Explaining the changes, a senior finance ministry official said this could bring relief to employers in a rising stock market as value at the time of vesting is generally lower than the value at the time of allotment.

But in a volatile or falling market, the FBT amount would increase, he said, adding the guidelines for determining the fair market value would be finalised soon.

Chidambaram also said FBT would have to be paid by employers, but the companies could adjust this amount with their employees as per their bilateral arrangement.

• Tax exemptions to go soon: FM