COVID-19 Pandemic: SEBI Eases Vesting Period Restrictions on ESOPs

The Securities and Exchange Board of India (SEBI), the Indian market regulator, has eased the restrictions on the minimum vesting period on the Employee Stock Option Plan (ESOP) when the ESOP holder dies. This is expected to help the families of the deceased ESOP holders avoid running into an immediate financial crunch. 

The COVID-19 pandemic has taken the lives of many, leaving their families in troubled waters. The worth of ESOPs held by the deceased may be significant and have a vesting period restriction, forcing families to wait to realise the amount. Now, the SEBI has relaxed such restrictions on ESOPs. 

The SEBI’s circular on the easing of ESOP vesting period restrictions say that the mandatory lock-in period of at least one year shall not be applicable on the ESOPS and Stock Appreciation Rights (SAR), which had been granted to the deceased employee under the Share Based Employee Benefit (SBEB) regulations. 

Such rights will vest with the nominee or legal heir of the deceased employee on the date of their death. This modification with respect to the vesting period has been made to provide financial support to the families of employees who have lost lives due to the crisis caused by the novel coronavirus. 

This relaxation has been made available for the families who have lost ESOP and SAR holders on or after the 1st of April 2020. The government and the central bank have announced several relief measures to support families that have lost an earning member. 

Issuing ESOPs is a popular way of attracting and retaining employees. Most startups rely on this to maintain liquidity and many employees have ESOPs as a part of their remuneration. Employees can own the shares of the company that they are working for through ESOPs. 

The Reserve Bank of India (RBI) had directed Public Sector Banks (PSBs) to provide an option moratorium for borrowers on their term loans in 2020. The Employees’ Provident Fund Organisation (EPFO) recently raised the assurance benefit under the Employees Deposit Linked Insurance Scheme (EDLI) from Rs 6 lakh to Rs 7 lakh.

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in

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