The Startup Founder & ESOP Tax Guide

A founder can be taxed on salary, stock options, dividends, and a share sale in the same year. Each of those uses a different rule. The figures on this page are for FY 2026-27. Read the section text on the Income-tax Act, 2025 hub before you file. The CBDT threshold page is labelled AY 2026-27. That label is not FY 2026-27.

Official sources

Income-tax Act, 2025 (CBDT hub)
Section 115BAC, the new regime used in the worked example
Employee benefits, including salary perquisites
Threshold limits (page labelled AY 2026-27, not FY 2026-27)
Form 26AS and AIS, where salary and dividend TDS show up
Income-tax return forms
Presumptive tax for small businesses, including Section 44AD named on 15 March

Four kinds of founder income

Money from your own company usually arrives in one of four ways. The tax depends on which way it is.

STREAM 1: SALARY

Fixed monthly pay. The company deducts TDS before it pays you.

Tax: Slab rates. How you split basic pay and HRA changes the HRA deduction. The HRA page has the metro rule.

STREAM 2: ESOP

Stock options. Taxed when you exercise them, and again when you sell the shares.

Tax: Perquisite (slab) + CG (20% / slab / 12.5%). If you can choose the year, exercise when your other income is lower. The windows are in the next section, and on the ESOP deferral page.

STREAM 3: DIVIDEND

Profit the company pays out to shareholders. TDS is 10% when the dividend is above ₹10,000.

Tax: Slab rates. If the company is loss-making, reinvest the money instead of taking a dividend.

STREAM 4: CAPITAL GAINS

Profit from selling shares. Unlisted shares: 24 months to count as long-term. Listed shares: 12 months.

Tax: 12.5% LTCG. Listed STCG is 20%. Unlisted STCG is at slab rates. Section 54GB can cover long-term gains from a house that you put into startup shares.

ESOPs are taxed twice

You pay tax when you exercise the option (when you buy the shares) and again when you sell those shares. A perquisite is the benefit added to your salary. FMV means fair market value.

HIT 1: EXERCISE (PERQUISITE)

At exercise, FMV minus the exercise price is a perquisite. It is taxed at your slab rate.

Example: FMV ₹500, exercise price ₹10, so the perquisite is ₹490 per share. The employer deducts TDS.

HIT 2: SALE (CAPITAL GAINS)

At sale you pay capital gains. The worked example later on this page takes sale price minus FMV at exercise: (₹1,200 − ₹500).

Listed: 12.5% LTCG if held more than 12 months, or 20% STCG if sold within 12 months. Unlisted: slab rates if held 24 months or less from exercise. Held more than 24 months from exercise: LTCG at 12.5%.

LISTED VS UNLISTED

Listed ESOPs: TDS at exercise, and the perquisite shows in Form 16. You sell through a broker, under the usual equity capital-gains rates. Unlisted ESOPs: the perquisite tax is often not deducted, so you pay it as self-assessment tax. The sale is off-market, so you report it in the ITR.

ESOP tax deferral

If the startup is recognized by DPIIT (Department for Promotion of Industry and Internal Trade) and certified by the Inter-Ministerial Board (IMB), you can defer the perquisite tax on ESOPs. You do not pay that tax until a trigger event. There is a separate note on the ESOP deferral page.

Allotment Date	Deferral Window	Trigger Events
Before 1 Apr 2026	48 months	Sale of shares, cessation of employment, or time expiry (whichever earliest)
On/after 1 Apr 2026	60 months

The perquisite tax is postponed until the trigger. It is payable in that year. TDS moves to the same event.

DPIIT AND IMB

Deferral is available only if the startup is recognized by DPIIT and certified by the IMB. Without both, you cannot defer the perquisite tax.

Section 80-IAC: three years of company income

Section 80-IAC gives a 100% deduction of the startup's business income for any 3 consecutive years out of the first 10. The deduction is for the company.

ELIGIBILITY CHECKLIST

✓ DPIIT-recognized startup

✓ IMB certified

✓ Incorporated as Pvt Ltd / LLP after 1 Apr 2016, before 1 Apr 2030

✓ Turnover ≤ ₹100 Cr in any FY since incorporation

✓ Not formed by splitting / reconstruction of existing business

✓ Not in excluded sectors (broking, real estate, capital goods leasing, jewellery, sin goods)

✓ Holds innovation patent / high-commercial-value innovation

COMPANY INCOME ONLY

80-IAC covers the startup's business income. Your salary, ESOP perquisite, and capital gains stay in your personal tax. The benefit sits with the company.

Angel tax: Section 56(2)(viib)

ABOLISHED

Section 56(2)(viib)

No tax on share issuance at a premium to any investor. Effective AY 2025-26 onwards (Budget 2024).

Section 56(2)(viib) used to tax a company when it issued shares at a premium. From AY 2025-26 it does not apply. A share issue at a premium to any investor is outside that section. If you still have a notice for a year before AY 2025-26, ask a chartered accountant. Issues from AY 2025-26 onward are not taxed under this section.

Unlisted shares

Most startup shares are unlisted. Count the holding period from the date you exercised the ESOP, or from the date you acquired the shares if you did not get them through an ESOP. The capital gains guide covers listed equity separately.

Type	Rate	Exemption
STCG (≤ 24 months)	Slab rates	None
LTCG (> 24 months)	12.5%	None (no ₹1.25L exemption)

FOREIGN RSUs: NO 112A EXEMPTION

If you hold RSUs from a foreign company (Google, Microsoft, and similar), the ₹1.25L LTCG exemption under Section 112A does not apply. STT (securities transaction tax) was not paid on an Indian exchange. Those gains are taxed at slab rates.

Section 54GB: property into a startup

If you sell a residential property and put the long-term capital gain into equity of a DPIIT-recognized startup, you can claim an exemption under Section 54GB. Section 54EC is a separate exemption for property gains.

Rule	Detail
Asset sold	Residential property
Reinvest in	Equity shares of DPIIT-recognized startup
Timeline	Within 12 months before or 24 months after sale
Shareholding	Must hold ≥ 50% of shares
Startup obligation	Must buy new assets within 1 year
Lock-in	5 years

GST and income tax

GST and income tax are two separate filings. Registering for one does not complete the other.

Aspect	GST	Income Tax
Registration threshold	₹20L (services)	N/A. Applies from ₹1
ESOP perquisite	No GST	Taxable as perquisite
Under-construction property	1% (affordable) / 5%	CG on sale

Worked example: ₹1.43 crore

You draw a salary of ₹24L. You exercised 10,000 ESOPs (grant ₹10, exercise ₹100, FMV at exercise ₹500) and sold them at ₹1,200. The startup is DPIIT-recognized and IMB-certified.

STEP 1. PERQUISITE AT EXERCISE (FY 2024-25)

(₹500 − ₹10) × 10,000 = ₹49,00,000. The sum uses the grant price of ₹10. Deferred, because allotment is before 1 Apr 2026, so the 48-month window applies.

STEP 2. TAX TRIGGER AT SALE (FY 2026-27)

The perquisite of ₹49L becomes taxable as salary in FY 2026-27, because the sale is the trigger. Total salary: ₹24L + ₹49L = ₹73L.

STEP 3. CAPITAL GAIN

(₹1,200 − ₹500) × 10,000 = ₹70,00,000. Unlisted shares, held less than 24 months from exercise, so STCG at slab rates.

TOTAL TAX (NEW REGIME)

~₹45-46L

Salary ₹73L + CG ₹70L = ₹1.43Cr total income. ~₹37.8L base + 15% surcharge (income above ₹1Cr) + 4% cess.

WHAT CHANGES THE BILL

Exercise in a year when your other income is lower, if you can. Hold the shares at least 24 months after exercise if you want LTCG at 12.5% instead of slab rates. Section 54GB applies if you sell property and invest in a startup. Section 80-IAC covers the startup's income, not your personal tax.

Founder tax calendar

These are the dates listed for a founder. Missing one can lead to a penalty. The 15 March row is the single installment under Section 44AD. See also the tax calendar and the ITR filing guide.

Date	Obligation
15 June	Advance tax: 15% of estimated liability
15 September	Advance tax: 45% cumulative
15 December	Advance tax: 75% cumulative
15 March	Advance tax: 100% (44AD single installment)
31 July	ITR filing (non-audit)
31 October	ITR filing (audit cases)

Run your numbers

The ESOP calculator estimates perquisite tax, deferral, and capital gains from the same inputs.

ESOP Tax Calculator →