How to File Income Tax on ESOPs in India – A Complete Guide for FY 2024-25

Understand how ESOPs are taxed at exercise and sale, and learn the step-by-step process to report them correctly in your Income Tax Return.

📌 What are ESOPs?

Employee Stock Option Plan (ESOP) is a benefit offered by employers allowing employees to buy company shares at a fixed price, often lower than market value.

ESOP Lifecycle:

1. Grant – Company offers options
2. Vesting – Options become exercisable
3. Exercise – Employee buys shares
4. Sale – Employee sells the shares

💸 Taxation of ESOPs in India

There are two taxable events under ESOPs: at the time of exercise and at the time of sale.

1. At the Time of Exercise

• The difference between FMV and exercise price is taxed as a perquisite under ‘Salary’.
• TDS is deducted by the employer.

2. At the Time of Sale

• Gains from sale of shares are taxed as Capital Gains.
• STCG (within 12 months): 15%
• LTCG (after 12 months): 10% above ₹1 lakh

📂 How to Report ESOPs While Filing ITR?

Step 1: Collect Details

• Dates, FMV, Exercise Price
• Form 16 and Broker Statements

Step 2: Report in ITR

• Perquisite tax under Salary in ITR-2
• Capital gains under Capital Gains Schedule

Step 3: Pay Remaining Tax (if any)

🧾 Example

Granted: 1,000 shares | Exercise Price: ₹100 | FMV: ₹250 | Sale Price: ₹400 (after 15 months)

At Exercise: Taxable = (₹250 – ₹100) × 1,000 = ₹1,50,000 (Salary Income)

At Sale: LTCG = (₹400 – ₹250) × 1,000 = ₹1,50,000 → Tax = ₹5,000 on ₹50,000 (exceeding ₹1L)

🧠 Important Points to Remember

✔ Unlisted shares LTCG taxed at 20% with indexation
✔ Foreign ESOPs need to be reported under Schedule FA
✔ Startups may get tax deferment under Section 192(1C)

🙋 Frequently Asked Questions (FAQs)

❓ 1. I haven’t sold my ESOPs yet. Do I need to pay tax?
➡️ Yes, if exercised, perquisite tax applies.

❓ 2. Do I need to report ESOPs if TDS is already deducted?
➡️ Yes, both salary and capital gains must be disclosed.

❓ 3. Are startup ESOPs also taxed?
➡️ Yes, but eligible startups may defer tax.

❓ 4. Which ITR form should I use?
➡️ Use ITR-2 for capital gains reporting.

❓ 5. How to calculate FMV of ESOPs?
➡️ Listed: Market price | Unlisted: By merchant banker.

🔚 Conclusion

Understand the two taxable stages—exercise and sale. Maintain documents, check your Form 16, and report everything in your ITR-2