How ESOPs are taxed
- At exercise: (FMV − exercise price) × shares is salary, taxed at your slab rate with TDS by the employer.
- At sale: gain over the FMV taken at exercise. Listed: 12.5% above ₹1.25 lakh if held over 12 months, otherwise 20%. Unlisted: 12.5% if held over 24 months, otherwise slab rate.
- Startup deferral for eligible startups — see the ESOP taxation guide. Options in a US parent? See US parent ESOPs.
Frequently asked questions
How is ESOP taxed in India?
At exercise, the difference between fair market value and exercise price is taxed as salary at slab rates with TDS by the employer. On sale, the gain over that fair market value is taxed as capital gains — for listed shares 12.5% above ₹1.25 lakh if held over 12 months or 20% otherwise; for unlisted shares 12.5% if held over 24 months or slab rate otherwise.
Can I defer tax on ESOPs?
Employees of eligible startups — DPIIT-recognised with an Inter-Ministerial Board certificate — can defer tax at exercise until the earliest of 60 months from the end of the tax year of allotment, sale of the shares, or leaving the company.