💰 Tax Savings · Income-head reliefs
ESOP tax deferral for startup employees (Income-tax Act 2025; old 192(1C))
✍️ EaseValue Advisors · Updated 17 Jul 2026 · FY 2025-26
In short
Employees of an eligible startup don't have to pay tax on their ESOP perquisite upfront — the tax/TDS is deferred to the earliest of 5 years, the sale of the shares, or leaving the company — Income-tax Act 2025 (old Section 192(1C)).
The problem it solves
Normally, ESOPs are taxed as a perquisite (Section 17) when you exercise them — a dry tax on shares you can't yet sell. For eligible startups, that cash-flow pain is deferred.
How the deferral works
- Tax on the exercise-date perquisite is deferred to the earliest of: 5 years from exercise, the date you sell the shares, or the date you leave the company.
- The value is still fixed at exercise; only the timing of the tax moves.
Conditions
Who it helps
Startup employees holding ESOPs — no upfront tax on paper gains. (Sale later attracts capital gains on the rise above the exercise value.)
The law behind it
Income-tax Act 2025 (old 192(1C)) Section 17 (perquisites)
General information for FY 2025-26 (AY 2026-27), not advice on your specific case. Limits, rates and conditions
change with each Finance Act and depend on your facts — confirm before acting. © EaseValue Advisors LLP.
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