Archive · 19 Nov 2025
India's Esop Laws Hindering Startup Success
India's old rules about giving employees shares in startups (Esops) are causing problems.
These rules make it hard for employees to pay taxes and sell their shares.
They also stop founders from getting Esops.
This is bad for startups and might make founders move their companies to other countries.
Experts say the rules should be changed to let founders get Esops with lower tax rates, if shareholders agree.
India's archaic Esop laws are counterintuitive for its thriving startup ecosystem.
Taxation issues include 'fair market value fallacy' and 'promoter prohibition'.
Budget 2020's Esop reforms didn't address core issues, only deferred taxes for some startups.
India's laws discourage founders from choosing India as their headquarters.
Experts suggest allowing founders Esops with book value FMV, subject to shareholder approval.
- Who
- Startups, employees, and founders in India
- What
- Are facing issues with Employee Stock Option Plans (Esops) due to outdated laws
- When
- These issues have been ongoing and were highlighted in a recent article
- Where
- In India
- Why
- Due to archaic laws and taxation issues
Current Laws
Proposed Changes
Taxation
Current Laws
Taxed at 'fair market value' which is hard to determine and often high
Proposed Changes
Taxed at book value, same as equity shares
- Startup Ecosystem Rank
- Third largest in the world
- Budget 2020 Esop Reform
- Deferred taxation for some startups
- Expert Suggested Fix
- Allow founders Esops with book value FMV, subject to shareholder approval