How are ESOPs taxed for employees in India?

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 answerESOPs are taxed at two points: first as a perquisite at exercise (the gap between the share’s fair market value and your exercise price is added to salary and taxed), and again as capital gains at sale (on any gain over that FMV). Employees of eligible DPIIT startups can defer the first tax.

The two taxing points

Exercise: FMV minus what you paid is taxed as a salary perquisite. Sale: any further gain over that FMV is capital gains.

Startup deferral

Employees of eligible DPIIT-recognised startups can defer the perquisite tax, easing the strain of being taxed before selling. Our ESOP advisory sets this up correctly.

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.