Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
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.
The mechanics, and what it doesn't change
The deferral shifts the timing of the perquisite tax, not its amount. For employees of an eligible startup — one holding the 80-IAC eligibility certificate from the Inter-Ministerial Board — the tax on the exercise-stage perquisite, and the employer’s obligation to deduct it, is postponed to the earliest of: five years from the end of the year of exercise, the date the employee leaves, or the date they sell the shares. At that trigger the tax is computed on the original exercise-stage value (FMV at exercise minus exercise price), so a later fall in the share price doesn’t reduce it, and a later rise is taxed separately as capital gain at sale. The relief is about cash flow — not being taxed before there’s any money — rather than a lower tax. It applies only to employees of eligible DPIIT-recognised startups, which is a narrower set than all recognised startups, so confirm the company holds the 80-IAC certificate before promising the benefit. Setting the ESOP scheme up to capture this, and tracking each employee’s trigger dates, needs care. Confirm the current conditions, which are tied to the eligible-startup definition.