Overview
ESOP (Employee Stock Option Plan) Filing refers to the correct tax computation and reporting of ESOP-related income in your income tax return.
ESOP taxation in India is multi-stage and complex. Tax can arise:
1. At the time of exercise (as perquisite income), and
2. At the time of sale (as capital gains)
Improper handling can lead to:
• Double taxation
• Incorrect TDS credit
• Wrong ITR selection
• Notices from the Income Tax Department
ESOP filing requires both payroll understanding and capital gains expertise, which generic ITR filing often misses.
Who Should Opt for ESOP Filing Services?
This service is relevant for:
• Employees who exercised ESOPs
• Employees who sold ESOP shares
• Startup employees receiving ESOPs as compensation
• Senior executives with large ESOP grants
• Employees of Indian startups or foreign companies
• Individuals receiving Form 12BA / perquisite disclosures
• Taxpayers confused between salary income vs capital gains
If ESOPs appear in your compensation, special tax handling is required.
How ESOPs Are Taxed in India (Two-Stage Framework)
1️⃣Tax at Exercise – Perquisite Income
- Taxable as salary income
- Value = FMV on exercise date – Exercise price
- TDS usually deducted by employer
- Reported in Form 16 and Form 12BA
2️⃣Tax at Sale – Capital Gains
• Difference between sale price and FMV on exercise
• Classified as:
o Short-term capital gains, or
o Long-term capital gains
• Tax rate depends on:
o Holding period
o Whether shares are listed or unlisted
Both stages must be reported correctly and separately.
Special Relief for Startup Employees (Eligible Startups)
Employees of eligible startups may get relief where:
• Tax on ESOP perquisite is deferred
• Tax becomes payable at the earliest of:
o Sale of shares
o Leaving the company
o End of prescribed period
This relief is conditional and documentation-driven.
Incorrect claim can trigger demand notices.
ITR Selection – Critical Decision
ESOP transactions usually require:
• ITR-2 (salary + capital gains), or
• ITR-3 (if other business/professional income exists)
Filing ITR-1 despite ESOP activity can result in a defective return.