How do startups defer ESOP tax for employees?

Name: Vijay R Singh & Co.
Address: Office No. 4, Vishal CHSL, D Wing, Sir Mathuradas Vasanji Road, Azad Nagar, Opp. Andheri Gymkhana, Andheri East, Maharashtra, 400069, IN
Telephone: +91 98607 23959

CA Vijay R Singh, FCA
Chartered Accountant · ICAI M.No. 153926 · FRN 136869W

Short answerEmployees of eligible DPIIT-recognised startups can defer the perquisite tax on ESOP exercise. Instead of paying when they exercise, the tax is deferred to the earliest of: five years from exercise, the date they leave the company, or the date they sell the shares. This eases the cash-flow strain of being taxed before any sale.

How the deferral works

The employer withholds and the employee pays the perquisite tax later — at the earliest of the three trigger dates above — rather than at exercise.

Who's eligible

It applies to employees of startups that are eligible DPIIT-recognised entities (those holding the 80-IAC eligibility certificate). Confirm current conditions. Our ESOP advisory handles the mechanics.

NRI Taxation

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This answer is general information for NRIs, not tax advice. Tax rates, thresholds and forms change with each Finance Act — please confirm the current position for your own facts, or speak to us, before acting.