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Startup ecosystem · ESOP

ESOP TDS deferral: Sec 392 (old 192(1C)) for DPIIT + Sec 140 (old 80-IAC) startups

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For employees of DPIIT-recognised startups that also have Sec 140, Income-tax Act 2025 (old Sec 80-IAC) IMB certificate, TDS on ESOP perquisite is deferred until the earliest of: (1) Sale of shares by the employee (2) Cessation of employment (3) 5 years from the date of allotment of shares.

Provisions

IT Act 1961, Sec 192(1C) (now 392) | Finance Act 2020

Analysis

Why this matters: Without deferral, an employee exercises options worth ₹50L perquisite, owes ₹15L+ in TDS immediately, even though they hold illiquid unlisted shares with no cash to pay. With deferral, the tax hits only when they sell and have cash.

Close

  1. DPIIT Recognition Certificate, must be active at time of grant
  2. Sec 140 (old Sec 80-IAC) IMB Certificate, the step 90% of startups miss (apply separately from DPIIT recognition)
  3. Both certificates must be valid at the time of ESOP allotment
  4. Company must maintain a record of eligible grants vs non-eligible grants

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