How can NRI exercise an ESOP?

An NRI can exercise an ESOP through NRE or NRO trading, bank, and Demat account.

The listed Indian Companies are allowed to issue shares to its employees including employee's resident outside India except to the citizens of Pakistan. The ESOPs are issued with a waiting period known as the vesting period. The vesting period generally ranges from 3-5 years. Once the waiting period is over, an NRI can exercise their right to purchase the shares allotted to them under ESOP at a pre-determined price within a specific timeframe.

The shares under ESOP come in the Non-PIS category. An NRI can purchase the shares by using the funds either from the NRE account or NRO account based on whether the shares are to be held with or without repatriation benefits.

The shares acquired under ESOP are taxed at the time of exercising the stock option. The benefit received as a difference between the Fair Market Value and the value at which the ESOP gets taxed as a perquisite in the hands of the NRI.

Note: Exercising an ESOP is an option and not mandatory. Thus, an NRI may or may not opt to exercise their right to purchase the ESOP at their will.