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What are tax implecations for selling Stocks which are given by company as ESOPs via demat account.?


Apart from the services charges by bank for selling the stocks? Is bank will cut the TDS from these as these are income. Guide with good site or article, which have info on these. Thanks in advance.

Employee Stock Ownership Plan (ESOP) is a qualified stock bonus plan or combination stock bonus plan and money purchase plan and it is designed to invest primarily in the employer securities.

If you sell your ESOPs the distribution will be taxed like any other qualified plan....meaning the Fair Market Value (sale price) of the distribution minus - the amount of your after tax contributions = your gain on the sale which will be treated as ordinary income and taxed at your ordinary income tax rate 10% up to 36%..

If you choose to take a lump sum distribution, the realized appreciation in the ESOP value is taxed only when you sell them....unless you make the election to include it in income in the year you received them. This election is made on Form 4972.

Here is an example: (best case scenario)
The total employer securities purchased for your ESOP over the years equals 5,000. You leave the job when the securities are worth $20,000. Take the securities rather than the cash from selling....thus paying tax at ordinary rates on only the $5,000 distribution of ESOP stock purchased. (this becomes your basis in the securities). Wait until they are worth $25,000 before selling them. Then you take the $20,000 gain (25,000 - 5,000) which is taxed at long term capital gain rates rather than ordinary income rates.

If you chose this way of taking your initial distribution keep in mind that if you are in a 10% to 15% tax bracket, the long term capital gain rates are merely 5% and 2008 through 2010 they will be 0% for this tax bracket.
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