How are ESOPs taxed in India?

ESOPs are taxed in two separate stages. At exercise: the difference between the FMV on the exercise date and your exercise price is a perquisite under Section 17(2)(vi), added to your salary and taxed at your slab rate. At sale: the gain from the FMV at exercise to the actual sale price is capital gains, taxed at 20 percent (STCG, listed shares under 12 months), 12.5 percent (LTCG, listed shares 12 months or more, above Rs 1.25 lakh exemption), or at slab rates (STCG, unlisted shares under 24 months). A 4 percent cess applies in all cases.

What is the capital gains tax rate for ESOP shares in FY 2026-27?

For listed Indian company shares: STCG (under 12 months) is 20 percent under Section 111A, and LTCG (12 months or more) is 12.5 percent under Section 112A with a Rs 1.25 lakh annual exemption. For unlisted shares: STCG (under 24 months) is at income tax slab rates, and LTCG (24 months or more) is 12.5 percent without indexation. A 4 percent health and education cess applies to all capital gains tax. These rates were introduced in Budget 2024 and remain unchanged for FY 2026-27 (Budget 2026 made no changes to capital gains tax).

How is FMV determined for ESOP taxation?

For listed shares: FMV is the average of the opening and closing price on the exercise date on the recognised stock exchange (NSE or BSE). If no trading occurred on that date, the closing price on the nearest preceding trading date is used. For unlisted shares: FMV is determined by a Category-I SEBI-registered Merchant Banker under Rule 3(8) of the Income-tax Rules, 1962, on the exercise date or a date not more than 180 days before it. Your employer is required to compute and report the perquisite using this FMV. The FMV used will appear in your Form 16 under the perquisite section.

Are RSUs taxed the same as ESOPs in India?

For Indian company RSUs, tax treatment is identical to ESOPs. At vesting, the FMV is taxed as a perquisite (salary). At sale, the gain over the FMV at vesting is capital gains. For RSUs from foreign employers (like US tech giants), the perquisite is the FMV in foreign currency converted to INR at the vesting date, taxed as salary. Capital gains on foreign company shares use 24-month holding for LTCG and are taxed at 12.5 percent without the listed-share benefit (since STT was not paid on a foreign exchange). Foreign assets and income must be reported in Schedule FA of your Indian ITR.

What happens if the share price falls below the FMV at exercise?

If you exercise at Rs 450 FMV, pay perquisite tax on the gain, but then sell at Rs 300, you have a capital loss of Rs 150 per share (Rs 300 minus Rs 450 exercise FMV, which is negative). This capital loss can be set off against other capital gains in the same assessment year. Short-term capital losses can be set off against both STCG and LTCG. Long-term capital losses can only be set off against LTCG. Unadjusted capital losses can be carried forward for 8 assessment years. However, the perquisite tax paid at exercise is not refundable, so you are taxed on the notional gain even if the share later falls in value.

Free Tool for FY 2026-27

ESOP Tax Calculator
for India FY 2026-27

Updated 3 Oct 2026 · GetHirePlus team

Compute your perquisite tax at exercise and capital gains tax at sale. For Indian listed and unlisted company shares, with startup deferral notes.

This calculator estimates tax on ESOPs in two stages. At exercise: perquisite = (FMV on the exercise date minus exercise price) × shares, taxed as salary at your slab rate plus 4% cess. At sale: capital gain = (sale price minus that FMV) × shares, taxed at 20% or 12.5% for listed shares, or slab rate or 12.5% for unlisted shares, plus cess.

Perquisite under Section 17(2)(vi) LTCG at 12.5% (Section 112A) STCG at 20% (Section 111A) Startup TDS deferral (80-IAC startups)

📈

ESOP Details

Share Type

Listed shares: traded on NSE or BSE. Different holding periods apply.

Exercise Details

Exercise Price per Share (what you paid)

₹

FMV at Exercise Date per Share (from Form 16 or ESOP statement)

₹

Number of Shares Exercised

Your Marginal Income Tax Rate (new regime)

This rate applies to the perquisite value and to unlisted STCG. Use your rate after adding the perquisite to your other income.

Sale Details (optional, to compute capital gains)

Sale Price per Share (leave blank if not yet sold)

₹

Months Held Since Exercise

Only startups with both DPIIT recognition AND Section 80-IAC certificate qualify for perquisite tax deferral.

Sample values shown (1,000 listed shares, exercise price Rs 10, FMV Rs 450, sold at Rs 600 after 14 months, 30% slab). Change them to get your own number.

✅

Tax Summary

Enter your ESOP exercise details and click Calculate. Sale details are optional but needed for capital gains computation.

Total Tax Liability
Rs 0
on exercise only

Perquisite Value

Rs 0

treated as salary

Capital Gain

Rs 0

on sale

Net Proceeds (After Tax)

Rs 0

sale value minus total tax

Stage 1: Perquisite Tax at Exercise

Startup Tax Deferral (Section 80-IAC)
Since your employer is a DPIIT-recognised startup with Section 80-IAC status, perquisite TDS is deferred under Section 192(1C). No TDS is deducted at exercise. Tax becomes payable at the earliest of: 48 months from the end of the relevant assessment year, the date you sell the shares, or the date you leave the company. Confirm the deferral eligibility with your employer's finance team before assuming no deduction.

Estimate only, for Indian company shares. For RSUs from foreign employers (US listed companies), capital gains rules differ and foreign asset disclosure (Schedule FA in ITR) is mandatory. Surcharge (10% for income 50L to 1Cr, 15% for 1Cr to 2Cr, 25% above 2Cr) not included in this estimate. Consult a chartered accountant for precise figures.

How ESOP Taxation Works in India

Two stages, two different tax treatments, explained clearly.

Grant: When you receive the option

Your company grants you the right to buy shares at a fixed price (the exercise or strike price) in the future. There is no tax at the grant stage. The grant vesting schedule determines how many shares you unlock over time.

The grant price is usually the FMV at the date of grant, though for startups it can be a discounted price. The gap between the eventual FMV and this grant price is where your wealth (and tax) is created.

Vesting: When shares become yours

Vested shares are shares you have earned the right to exercise. Vesting creates no tax event by itself. The right to exercise a vested option continues until the option expiry date (typically 10 years from grant).

Exercise: Tax Stage 1 (Perquisite)

When you choose to exercise (buy the shares at the exercise price), you trigger the perquisite tax. The perquisite value is:

(FMV on exercise date minus Exercise price) multiplied by Shares exercised

This amount is added to your salary income for the year and taxed at your applicable slab rate. Your employer deducts TDS under Section 392 of the Income-tax Act, 2025 (earlier Section 192) and reports it in your TDS certificate, Form 130 from tax year 2026-27 (earlier Form 16). The FMV used is the average of open and close price on NSE/BSE for listed shares, or a merchant banker valuation for unlisted shares.

Exception: For employees of eligible startups (DPIIT-recognised and holding the Section 80-IAC certificate), TDS at exercise is deferred under Section 192(1C) to the earliest of 48 months from the end of the relevant assessment year, the date of sale, or the date you leave the company.

Sale: Tax Stage 2 (Capital Gains)

When you sell the shares, the gain from the FMV at exercise to the sale price is a capital gain. The rate depends on the share type and how long you held them after exercise:

Listed shares: STCG (sold within 12 months of exercise): 20% under Section 111A. LTCG (held 12 months or more): 12.5% under Section 112A, with a Rs 1.25 lakh annual exemption.

Unlisted shares: STCG (sold within 24 months of exercise): taxed at slab rates. LTCG (held 24 months or more): 12.5% without indexation.

A 4 percent health and education cess applies on all capital gains tax.

Summary Formula

→Perquisite = (FMV at exercise minus Exercise price) x Shares

→Perquisite tax = Perquisite x Your marginal slab rate x 1.04 (cess)

→Capital gain = (Sale price minus FMV at exercise) x Shares

→Capital gains tax = Gain x Applicable rate x 1.04 (cess)

→Net proceeds = (Sale price x Shares) minus Total tax paid

ESOP Tax Rates for FY 2026-27

The capital gains rates set from 23 July 2024 apply for tax year 2026-27. Section numbers below (17(2)(vi), 111A, 112A, 192(1C)) are the 1961 Act numbering; the Income-tax Act, 2025 renumbers them.

Listed Shares (NSE / BSE)

Holding period counted from date of exercise

At exercise (perquisite)

At slab rate

STCG (under 12 months)

20% + 4% cess

LTCG (12 months or more)

12.5% + 4% cess

LTCG annual exemption

Rs 1.25 lakh

STT applicable?

Yes (at exchange)

Unlisted Shares (Startups)

Holding period counted from date of exercise

At exercise (perquisite)

At slab rate

STCG (under 24 months)

Slab rate + 4% cess

LTCG (24 months or more)

12.5% + 4% cess

LTCG annual exemption

None

Indexation benefit

No (removed in 2024)

RSUs from foreign employers (US tech companies): Perquisite is the FMV in foreign currency converted to INR at exercise/vesting. Capital gains on sale of foreign company shares are taxed at slab rates if held under 24 months, and at 12.5 percent for 24 months or more (since STT was not paid). These shares must also be reported in Schedule FA of your ITR. Use a CA for accurate computation.

Worked example (the sample values above)

You exercise 1,000 options in a listed company at an exercise price of Rs 10 when the FMV is Rs 450, you are in the 30% slab (new regime), and you sell 14 months later at Rs 600.

Step	Working	Amount
Perquisite at exercise	(450 − 10) × 1,000	Rs 4,40,000
Tax on perquisite	4,40,000 × 30% × 1.04	Rs 1,37,280
Capital gain at sale	(600 − 450) × 1,000, held over 12 months = LTCG	Rs 1,50,000
Tax on LTCG	(1,50,000 − 1,25,000 exemption) × 12.5% × 1.04	Rs 3,250
Total tax		Rs 1,40,530

Most of the tax falls at exercise, before you have sold anything. That is why many employees sell part of the shares on the exercise date to cover the perquisite TDS. Surcharge is not included.

Frequently Asked Questions

Common ESOP tax questions answered for India FY 2026-27.

ESOPs are taxed in two separate stages. At exercise: the difference between the FMV on the exercise date and your exercise price is a perquisite under Section 17(2)(vi), added to your salary and taxed at your slab rate. At sale: the gain from the FMV at exercise to the actual sale price is capital gains, taxed at 20 percent (STCG, listed shares under 12 months), 12.5 percent (LTCG, listed shares 12 months or more, above Rs 1.25 lakh exemption), or at slab rates (STCG, unlisted shares under 24 months). A 4 percent cess applies in all cases.
Employees of startups that hold both DPIIT registration AND a Section 80-IAC tax holiday certificate can defer perquisite TDS at exercise under Section 192(1C). The employer does not deduct TDS at exercise. Tax becomes payable at the earliest of: 48 months from the end of the assessment year in which shares were allotted, the date you sell the shares, or the date you leave the company. Confirm your employer's status before assuming deferral applies.
For listed Indian company shares: STCG (under 12 months) is 20 percent under Section 111A, and LTCG (12 months or more) is 12.5 percent under Section 112A with a Rs 1.25 lakh annual exemption. For unlisted shares: STCG (under 24 months) is at income tax slab rates, and LTCG (24 months or more) is 12.5 percent without indexation. A 4 percent health and education cess applies to all capital gains tax. These rates were introduced in Budget 2024 and remain unchanged for FY 2026-27 (Budget 2026 made no changes to capital gains tax).
For listed shares: FMV is the average of the opening and closing price on the exercise date on the recognised stock exchange (NSE or BSE). If no trading occurred on that date, the closing price on the nearest preceding trading date is used. For unlisted shares: FMV is determined by a Category-I SEBI-registered Merchant Banker under Rule 3(8) of the Income-tax Rules, 1962, on the exercise date or a date not more than 180 days before it. Your employer is required to compute and report the perquisite using this FMV. The FMV used will appear in your Form 16 under the perquisite section.
For Indian company RSUs, tax treatment is identical to ESOPs. At vesting, the FMV is taxed as a perquisite (salary). At sale, the gain over the FMV at vesting is capital gains. For RSUs from foreign employers (like US tech giants), the perquisite is the FMV in foreign currency converted to INR at the vesting date, taxed as salary. Capital gains on foreign company shares use 24-month holding for LTCG and are taxed at 12.5 percent without the listed-share benefit (since STT was not paid on a foreign exchange). Foreign assets and income must be reported in Schedule FA of your Indian ITR.
If you exercise at Rs 450 FMV, pay perquisite tax on the gain, but then sell at Rs 300, you have a capital loss of Rs 150 per share (Rs 300 minus Rs 450 exercise FMV, which is negative). This capital loss can be set off against other capital gains in the same assessment year. Short-term capital losses can be set off against both STCG and LTCG. Long-term capital losses can only be set off against LTCG. Unadjusted capital losses can be carried forward for 8 assessment years. However, the perquisite tax paid at exercise is not refundable, so you are taxed on the notional gain even if the share later falls in value.

ESOP Tax Calculator
for India FY 2026-27

How ESOP Taxation Works in India

Grant: When you receive the option

Vesting: When shares become yours

Exercise: Tax Stage 1 (Perquisite)

Sale: Tax Stage 2 (Capital Gains)

Summary Formula

ESOP Tax Rates for FY 2026-27

Listed Shares (NSE / BSE)

Unlisted Shares (Startups)

Worked example (the sample values above)

Frequently Asked Questions

Related tools

Sources

Build a Great Team with GetHirePlus

ESOP Tax Calculator for India FY 2026-27

How ESOP Taxation Works in India

Grant: When you receive the option

Vesting: When shares become yours

Exercise: Tax Stage 1 (Perquisite)

Sale: Tax Stage 2 (Capital Gains)

Summary Formula

ESOP Tax Rates for FY 2026-27

Listed Shares (NSE / BSE)

Unlisted Shares (Startups)

Worked example (the sample values above)

Frequently Asked Questions

Related tools

Sources

Build a Great Team with GetHirePlus

ESOP Tax Calculator
for India FY 2026-27