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TDS on ESOP prerequisite by eligible startups

Affluence Advisory , Last updated: 30 May 2023  

Income-tax Act, 1961 permitting deferral of the timing of TDS deduction on ESOP prerequisite from the employees. Section 192(1C) allowed an "eligible start-up" as referred to in Section 80-IAC of the Income-tax Act to deduct or pay tax on the ESOP perquisite within 14 days of specified events as follows:

  • Completion of 60 months from the end of the relevant financial year in which ESOP shares are allotted or transferred.
  • Date of sale of ESOP or sweat equity shares by the employee
  • Date of cessation of employment of an employee with the relevant start-up whichever is earlier.  
TDS on ESOP prerequisite by eligible startups

"Eligible start-up" means a company, or a limited liability partnership engaged in an eligible business that fulfills the following conditions, namely:  

  1. It is incorporated on or after 1.4.2016 but before 1.4.2023
  2. The total turnover of its business does not exceed Rs 100 crore
  3. It holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the central government

Accordingly, the above benefit of deferral of payment of tax is available only for employees of 'eligible start-ups'. At present, there are more than 88,000 start-ups recognised by the Department for Promotion of Industry and Internal Trade ('DPIIT'), but only 993 are eligible under Section 80-IAC of the Act.


Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement

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Affluence Advisory
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