ESOP & Startup Equity Calculator 2026

ESOPs in India are taxed in two stages: (1) At Exercise: As a Perquisite (salary income) on the difference between Fair Market Value (FMV) and Strike/Exercise Price; (2) At Sale: As Capital Gains (LTCG/STCG) on the difference between Sale Price and FMV at exercise.

Under Section 192(1C), eligible DPIIT-recognized startups can defer ESOP TDS deduction to the earliest of 48 months from the relevant assessment year, the date of share sale, or the employee resignation date.

Unlisted shares held more than 24 months are taxed at 12.5% without indexation. Two things trip people up. First, the holding period runs from the date you exercised, not from the grant or vesting date. Second, your cost is the fair market value on which you already paid perquisite tax at exercise, not the exercise price you paid — so you are not taxed twice on the same gain. If the company lists before you sell, the holding period drops to 12 months.

Under Rule 3(8) of the Income-tax Rules, the perquisite value of unlisted shares on the exercise date must be certified by a SEBI-registered Category I merchant banker, and the valuation has to be as on the exercise date or any date within 180 days before it. You cannot use the last funding round price, a 409A report or the company's own working. For listed shares the rule is different and simpler: the average of the opening and closing price on the exercise date.

The perquisite tax on exercise is final and is not refundable, because it was salary income in the year you exercised. What you do get is a cost of acquisition equal to the FMV on which you already paid tax. If you later sell the shares at a buyback or in a secondary deal for less than that FMV, or the company winds up and the shares become worthless on a transfer, the difference is a capital loss you can set off against other capital gains and carry forward for eight years.

Vested options usually have to be exercised inside an exercise window set by the plan, often 30 to 90 days from your last working day, and anything unexercised lapses. Unvested options lapse immediately on the last working day in most Indian plans. Exercising within that window still triggers perquisite tax on the FMV minus the exercise price, and your ex-employer must deduct TDS on it, which often means paying cash to the company for both the strike price and the tax.