If you exercise ESOPs at an eligible startup, you do not have to pay the perquisite tax right away. Under Section 192(1C) of the Income-tax Act, that tax can be deferred until the earliest of: 48 months from the end of the assessment year of allotment, the date you sell the shares, or the date you leave the company. This solves the classic startup problem of a tax bill on shares you cannot yet sell.
Quick answer. The deferral is only for employees of a startup that is both DPIIT-recognised and holds an 80-IAC exemption certificate. DPIIT recognition alone is not enough. The perquisite value is still fixed at exercise, but the tax and the TDS on it are postponed to the earliest of the three trigger dates.
| Requirement | What it means |
|---|---|
| DPIIT recognition | Your employer is a recognised startup under the Startup India scheme |
| 80-IAC certificate | The startup also holds the tax-exemption certificate from the Inter-Ministerial Board |
| ESOP allotment | Shares were actually allotted to you on exercise of the option |
If your employer has only DPIIT recognition but not the 80-IAC certificate, the deferral does not apply, and normal ESOP taxation at exercise stands.
ESOPs are taxed at two points. First as a salary perquisite when you exercise, on the difference between the fair market value and the price you paid. Second as a capital gain when you finally sell.
At a private startup, the shares you get on exercise cannot be sold on any exchange. So you can face a real tax bill on paper gains, with no cash to pay it. Section 192(1C), inserted by the Finance Act 2020, was written to solve exactly this cash-flow trap for eligible startup employees.
Karthik exercises ESOPs at a DPIIT-recognised, 80-IAC certified startup in Hyderabad. The perquisite value at exercise is 15 lakh rupees, and at a 30 percent slab the tax would be about 4.5 lakh rupees.
Without the deferral, he would owe that 4.5 lakh in the year of exercise, with no shares he can sell to raise it. With the deferral under Section 192(1C), his employer does not deduct that tax at exercise. It becomes due only when he sells the shares, when he leaves the startup, or after 48 months from the end of the assessment year, whichever comes first. If he sells in year three at a profit, the perquisite tax and the capital-gains tax are paid together from real money.
The deferral framework moved into the new Income-tax Act 2025, which applies from the 2026-27 tax year. The core relief for eligible startup employees continues. Because the new Act is still being rolled out, confirm the exact outer time limit that applies to your allotment year with a tax professional or the current Income Tax Department guidance before you file.
Only employees of a startup that is both DPIIT-recognised and holds an 80-IAC exemption certificate. For other companies, ESOP perquisite tax is due in the year of exercise as normal.
On the earliest of three dates: 48 months from the end of the assessment year in which the shares were allotted, the date you sell the shares, or the date you leave the company.
The perquisite value is fixed on the exercise date, and the tax rate is your slab for the exercise year. The deferral only postpones when you pay, not how much the perquisite is.
No. When you sell the shares, the gain from the exercise-date value to the sale price is taxed as capital gain, separately from the deferred perquisite tax.
Leaving the company is one of the three trigger events. The deferred perquisite tax becomes due then, even if you have not sold the shares. Keep cash aside for this.
The deferral for eligible startup employees continues under the new Act from the 2026-27 tax year. Confirm the exact outer time limit for your allotment year with current Income Tax Department guidance.