Companies believe that employee stock options (Esops) are still a motivational driver for staff, notwithstanding the fringe benefit tax levied on ESOPs, according to a survey of IT companies by Deloitte Haskins & Sells (DHS).

The fringe benefit tax (FBT) was levied on ESOPs in the Union Budget this year and the IT industry is still grappling with the issue of how to factor in the tax.

According to the survey, most companies view the tax as a 'cog in the wheel' and may choose to factor in FBT in the cost-to-company (CTC) for employees.

M Lakshminarayanan, partner, DHS, said: "The introduction of FBT has not taken away the sheen from Esops and companies still consider Esops as an important tool to attract and retain staff."

"Because of express provisions in the Income-Tax Act that allow the employer to recover FBT from employees, most companies (albeit not in favour of FBT) prefer to issue ESOPs at less than the fair market value and may factor FBT as a part of CTC of an employee."

This, however, could be a dampener for employees if the company is not listed as the employee may be saddled with FBT as the shares allotted are not encashable.

The unanimous view of companies is to allow the ESOPs cost as a deduction consequent to the introduction of FBT. They also need clarity on applicability of ESOPs on deputation of employees to the Indian company from abroad.

K R Sekar, also a partner with Deloitte, said, "Most of the companies are of the view that the existing guidelines can take care of the Esops valuation and any fresh guidelines would lead to further confusion and increased burden."

 "This is important as SEBI guidelines on Esops contain detailed provisions on accounting and have guidelines on valuations which is mandatory for listed companies."

Though SEBI guidelines are not binding, unlisted companies would rather comply in keeping with good corporate governance, as a preparatory step for an eventual IPO.

The second installment of advance tax on FBT is due in the next couple of weeks, but no detailed guidelines on Esops valuation has been issued by the Central Board of Direct Taxes.