Answer

1. F

   Facts

   The exercise price is what the employee pays to convert options into shares. The FMV is what the shares are actually worth, the difference is the perquisite.

2. P

   Provisions and law

   • IT Act 1961, Sec 17(2)(vi) (now 17(1)(d)) | Rule 11UA(1)(c)(b)
3. A

   Analysis

   For unlisted companies, FMV for ESOP purposes must be determined by a SEBI-registered merchant banker or a CA using the prescribed method under Rule 11UA. This is not the same as the VC round valuation, it's a separate computation based on DCF or NAV method. Exercise price can be as low as ₹1 (face value), which maximises employee value but maximises perquisite tax. A higher exercise price reduces perquisite but also reduces benefit. Most startups set exercise price = FMV at grant date (so perquisite at exercise = growth in FMV, not total value).

4. C

   Conclusion

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