Archive · 24 Aug 2026
Why a ₹1 Crore ESOP Sale May Yield Much Less
Employee stock options let workers buy company shares at a set price.
Before selling, they may need to pay the exercise price and tax on the shares’ value.
In the example, this requires ₹27.16 lakh before any shares are sold.
The employee later sells the shares for ₹1 crore.
The tax calculation uses the shares’ value when they were exercised, not the original purchase price.
How long the shares were held changes the capital-gains tax.
Listed and unlisted shares can also be taxed differently.
After these taxes and costs, the employee may receive about ₹59 lakh to ₹68 lakh.
Borrowing costs and discounts on unlisted shares could reduce the amount further.
An employee’s final ESOP proceeds depend on exercise cost, exercise-date FMV, holding period and whether shares are listed.
In the example, exercising shares costs ₹10 lakh and creates a ₹50 lakh taxable perquisite.
At a 30% tax rate plus surcharge and cess, exercise-related tax is about ₹17.16 lakh.
Selling shares for ₹1 crore can leave the employee with approximately ₹59.11 lakh to ₹68 lakh.
Interest, brokerage, transaction charges, discounts on unlisted shares and advance-tax shortfalls can further reduce proceeds.
- Who
- Employees holding employee stock options, with an illustration from Parag Jain, tax head at 1 Finance.
- What
- The article explains how taxes, exercise costs, holding periods and transaction expenses affect the cash received from selling ESOP shares.
- When
- At exercise and when the shares are eventually sold; the examples distinguish holding periods above or below 24 months for unlisted shares and 12 months for listed shares.
- Where
- The scenarios cover listed and unlisted company shares; unlisted employees may face difficulty selling shares immediately.
- Why
- A ₹1 crore sale value is not the employee’s final payout because exercise costs, perquisite tax, capital-gains tax and other expenses reduce the proceeds.
- Exercise price
- ₹10 lakh in the illustration.
- Fair market value at exercise
- ₹60 lakh.
- Taxable perquisite
- ₹50 lakh, calculated as the exercise-date FMV minus the exercise price.
- Exercise-related tax
- About ₹17.16 lakh under the assumed 30% tax rate, 10% surcharge and 4% cess.
- Total cash outflow before sale
- ₹27.16 lakh, including the exercise price and exercise-related tax.
- Illustrated sale value
- ₹1 crore.
- Illustrated net proceeds
- Approximately ₹59.11 lakh to ₹68 lakh, depending mainly on listing status and holding period.