ESOPs & RSUs

That is the whole risk in one line. The rest of this page explains each step.

What is the difference between an ESOP and an RSU?

An ESOP is an option. You get the right to buy shares at a fixed price. You choose whether to exercise it. If the share price falls below that price, the option is worthless and you walk away.

An RSU is a grant. The shares come to you once they vest. There is nothing to buy and no strike price. An RSU always has value, unless the share itself is worthless.

So an ESOP is a bet on growth. An RSU is deferred pay. Treat them differently when you value a job offer. Our page on CTC versus in-hand salary covers the wider problem of paper CTC.

How are ESOPs taxed at exercise?

The gain at exercise is taxed as a salary perquisite. The taxable amount is the fair market value of the share on the exercise date, minus what you paid for it.

The Press Information Bureau put the position plainly in its summary of the 2020-21 Budget: “ESOPs are taxable as perquisites at the time of exercise.” That has not changed for most employers.

The tax is at your slab rate. Your employer deducts it as TDS from your salary. That is what catches people out. You did not receive cash, but your take-home pay drops that month to fund the tax. Plan for it before you exercise, not after.

For a listed company the fair market value is the market price. For an unlisted company it is a valuation, and you have no say in it. Ask what value the company will use before you exercise.

How are RSUs taxed in India?

The same way. On vesting, the full market value of the shares is a salary perquisite. There is no exercise price to subtract, so the whole amount is taxed.

Many multinational employers sell part of the vested shares automatically to cover the tax. It is called sell-to-cover. Check whether your plan does that. If it does not, the cash comes out of your salary instead.

What tax do you pay when you sell?

Your cost of acquisition for capital gains is the value already taxed as salary. You are not taxed twice on the same amount. Only the gain after that point is a capital gain.

The rate depends on what the share is and how long you held it. The holding period starts on the date of allotment, not the date of grant.

Figures as of 17 August 2026, from our tax dataset. Foreign listed shares, such as RSUs in a US parent, are not listed on an Indian exchange. They follow the longer holding period and the slab rate in the short term. Our page on capital gains tax sets out the full table, and capital gains exemptions covers the reliefs.

Can start-up employees defer the tax?

Yes, at eligible start-ups only. The Budget for 2020-21 created a deferral because the exercise tax was killing start-up ESOPs. Employees held illiquid paper and a real tax bill.

The Finance Minister proposed “deferring the tax payment for five years or till they leave the company or when they sell their shares, whichever is earliest”. The earliest of the three triggers wins. Leaving the job ends the deferral, which matters if you plan to move.

This applies only to start-ups eligible under the relevant provision. Most employers are not covered. If yours is, the deferred amount is reported in Schedule ESOP of the return. The CBDT validation rules for ITR-2 for assessment year 2026-27 include that schedule, and they bar the simpler forms where ESOP tax has been deferred.

Which return do you file?

Not ITR-1. Holding unlisted shares, or deferring ESOP tax, or holding foreign shares each rules out the simplest form. The CBDT validation rules say so directly.

Foreign shares bring a further duty. They must be disclosed in the foreign assets schedule, every year you hold them, whether or not you sold anything. Omitting it is treated seriously. Our page on international investing covers the reporting side. Check the perquisite value on your Form 16 and Form 26AS before you file.

If a large sale happens mid-year, your TDS will not cover the capital gains tax. That becomes an advance tax liability with interest attached. See our page on advance tax for the schedule.

The uncomfortable part

Stock pay concentrates your money and your job in one company. If the company struggles, your savings and your salary fall together. That is the opposite of diversification.

There is no neat rule for how much to hold. There is a useful test. Ask whether you would buy this much of your employer’s stock with cash today. If the answer is no, sell some when you can. Our guide to financial planning by age puts it in context.

Also be honest about unlisted shares. Without a buyback or a secondary sale, you cannot turn them into money. A grant letter is not a bank balance. Value it at zero in your plan until there is a route to sell.