What is an ESOP and how does it work in India?

An ESOP (Employee Stock Option Plan) grants eligible employees the right to purchase company shares at a predetermined exercise price after a vesting period. In India, ESOPs are governed by the Companies Act 2013 (Section 62(1)(b)) and SEBI (Share Based Employee Benefits) Regulations 2021 for listed companies. The company passes a special resolution, drafts an ESOP Scheme Document, files MGT-14 with the ROC within 30 days, and issues a Grant Letter to each employee specifying the number of options, exercise price, and vesting schedule.

What documents are required to set up an ESOP scheme in India?

Setting up an ESOP in India requires: (1) ESOP Scheme Document outlining eligibility, vesting schedule, exercise price, and lock-in; (2) Board resolution approving the scheme; (3) Special resolution passed by shareholders; (4) MGT-14 filing with the Registrar of Companies within 30 days of the special resolution; (5) SH-6 Register of Employee Stock Options; (6) Individual Grant Letters for each employee. For listed companies, SEBI filing is also mandatory.

What are the ROC/MCA compliance deadlines for ESOPs?

Key ROC/MCA deadlines for ESOP compliance in India: MGT-14 must be filed within 30 days of the special resolution approving the ESOP scheme. PAS-3 (Return of Allotment) must be filed within 30 days of each exercise (allotment) event. SH-6 (Register of Employee Stock Options) must be maintained and updated at each grant, vesting, and exercise event. Failure to meet PAS-3 deadlines attracts a penalty of ₹1,000/day under Section 450 of the Companies Act 2013.

How is ESOP valuation done for Indian companies?

ESOP valuation in India uses the Black-Scholes-Merton or Binomial pricing models as required under Ind AS 102 (Share-based Payment). For unlisted private limited companies, the Fair Market Value (FMV) of the underlying shares must be determined by a SEBI-registered Category I Merchant Banker or a Registered Valuer holding a Securities or Business Valuation qualification. The FMV is used for: (a) calculating perquisite income for TDS at exercise, and (b) grant date fair value for Ind AS 102 expense recognition. Accorp works with empanelled Registered Valuers to deliver audit-ready FMV reports.

What is Ind AS 102 and how does it affect ESOP accounting?

Ind AS 102 (Share-based Payment) requires companies to recognise the fair value of ESOPs granted to employees as a personnel cost over the vesting period, with a corresponding credit to the Share-based Payment Reserve in equity. The expense is calculated using the grant-date fair value (Black-Scholes or binomial model), spread over the vesting schedule using the straight-line or accelerated method. Disclosures in the financial statements must include the number and weighted-average exercise price of options outstanding, granted, exercised, and forfeited during the year. Incorrect or missing Ind AS 102 workings are a common cause of audit queries during due diligence.

How is TDS calculated on ESOP exercise in India?

At the time of exercise, the difference between the Fair Market Value (FMV) of shares on the exercise date and the exercise price paid by the employee is treated as a perquisite under Section 17(2) of the Income Tax Act 1961 and is added to the employee's salary income. The employer must deduct TDS under Section 192 on this perquisite value at the employee's applicable income-tax slab rate. For DPIIT-recognised startups, this TDS can be deferred to the earlier of: sale of shares, 5 years from allotment, or cessation of employment. Failure to deduct TDS makes the employer liable under Section 201 for the tax plus interest and penalty.

Can Indian startups grant ESOPs to foreign employees or contractors?

Indian private limited companies can grant ESOPs to employees (including foreign nationals on Indian payroll). However, ESOPs cannot be granted to independent contractors, advisors, or consultants under the Companies Act 2013 — only to employees (permanent, part-time, or on probation) of the company or its holding/subsidiary. For foreign employees outside India, FEMA compliance is required when options are exercised and shares are allotted to a non-resident: the company must file FC-GPR with the RBI within 30 days of allotment and ensure the allotment price meets FMV requirements under the FDI policy.

What is the typical timeline and cost to set up an ESOP scheme with Accorp?

Accorp's fixed-fee ESOP scheme setup typically takes 4–6 weeks end-to-end: Week 1–2 for scheme document drafting and legal review; Week 2–3 for board and shareholder resolutions; Week 3–4 for MGT-14 filing and ROC processing; Week 4–6 for Grant Letters and SH-6 register initialisation. Pricing starts from ₹49,000 for a standard private limited ESOP scheme (scheme document + MGT-14 + SH-6 register setup). Registered Valuer FMV reports for Ind AS 102 are available from ₹25,000. All fees are fixed — no hourly billing.

What happens to ESOPs when a startup gets acquired or goes public (IPO)?

In an acquisition, the acquirer typically either accelerates vesting (single or double trigger), replaces unvested options with equivalent acquirer options, or cash-settles the intrinsic value. The ESOP Scheme Document must include provisions for a Change of Control event to avoid ambiguity. At IPO, all vested options can be exercised and the resulting shares are listed — subject to SEBI lock-in rules (6 months for pre-IPO allotments). Unvested options continue under the original vesting schedule post-IPO unless the scheme is modified. Tax at exercise remains the same (perquisite income), and subsequent sale of shares is treated as capital gains.

What is the ESOP tax benefit available to DPIIT-recognised startups?

Under Section 80-IAC and the Startup India scheme, employees of DPIIT-recognised startups can defer the TDS liability on ESOP perquisite income to the earlier of: (a) 5 years from the date of allotment of shares, (b) the date the employee sells the shares, or (c) the date the employee leaves the company. This significantly improves employee cash flow since they do not have to pay tax on paper gains before monetisation. The employer must still compute and report the perquisite in Form 16 but marks it as deferred. The startup must remain DPIIT-recognised at the time of exercise for the benefit to apply.

Can an ESOP scheme be modified or cancelled after it is set up?

Yes, an ESOP scheme can be amended by passing a fresh special resolution of shareholders, provided the amendment is not detrimental to the interests of existing option holders (unless those option holders individually consent). A fresh MGT-14 must be filed for every material amendment within 30 days. Common amendments include expanding the option pool, changing the exercise price (subject to conditions), extending the exercise window, or adding new employee categories. Cancellation of the scheme requires that all outstanding options be dealt with — either accelerated, cash-settled, or forfeited — before the scheme can be formally wound up and SH-6 closed.

How does Accorp handle ongoing ESOP compliance after the scheme is set up?

Accorp's retainer-based ESOP compliance service covers: (1) Exercise window management — notifying employees, computing FMV, processing PAS-3 filings within the 30-day deadline; (2) Annual Ind AS 102 workings — grant date fair value, IFRS 2/Ind AS 102 expense schedule, and disclosure notes; (3) Registered Valuer FMV reports for each exercise event; (4) SH-6 register updates at each grant, vest, exercise, and lapse event; (5) TDS computation and Form 16 perquisite reporting; (6) Cap table management — post-exercise share register updates. Fixed-fee retainer pricing ensures no billing surprises during busy exercise windows.

ESOP Advisory by Accorp Partners

ESOP Services in India — Employee Stock Option Plans, Valuation & ROC Compliance

From ESOP scheme drafting to exercise compliance, valuation & accounting — handled by Accorp's specialist team. Fixed fees, zero surprises.

ESOP scheme setup and employee stock option planning for startups in India

ROC MGT-14 filing and Companies Act compliance for Indian ESOP schemes

Registered Valuer FMV report and Ind AS 102 ESOP accounting illustration

ESOP exercise window and PAS-3 allotment compliance for Indian companies

Pricing Packages

ESOP Packages

Fixed-fee ESOP services — no hourly billing, no surprise invoices during exercise windows.

Scheme Setup

Starter

For startups setting up their first ESOP scheme

₹49,000

One-time · Govt. fees extra

ESOP Scheme Document drafting

Board & EGM resolutions

MGT-14 filing with ROC

SH-6 register setup

Grant Letters for up to 10 employees

Document checklist & guidance

–Registered Valuer FMV report

–Ind AS 102 accounting workings

–PAS-3 exercise filing

Professional

Full compliance for one exercise window

₹99,000

One-time · Govt. fees extra

Everything in Starter

Registered Valuer FMV report (Black-Scholes)

Ind AS 102 expense schedule & disclosures

TDS computation on exercise

PAS-3 filing for one exercise window

Cap table update post-exercise

–Annual retainer support

Annual Retainer

Enterprise

Ongoing ESOP management for growing companies

₹2,49,000

Per year · Govt. fees extra

Everything in Professional

Annual Registered Valuer report

Unlimited exercise windows (PAS-3)

Unlimited Grant Letters

SH-6 register maintenance

Annual Ind AS 102 workings

TDS & Form 16 support

Cap table management (unlimited events)

Priority support during due diligence

All prices are estimates. GST applicable. Government fees and stamp duty are additional.

Process

How It Works

From discovery call to a fully compliant ESOP scheme — typically 4–6 weeks.

🎯

Day 1 · Free

Free Discovery Call

We start with a free 30-minute call to understand your company stage, cap table, and employee headcount. We map out the right ESOP structure — vesting schedule, exercise price methodology, and pool size — and give you a fixed-fee proposal on the spot.

Deliverables

ESOP structure recommendation

Option pool sizing guidance

Fixed-fee proposal

Document checklist

Dedicated relationship manager

Why Choose Accorp for ESOPs?

Every ESOP file is handled by a CA or CS — not outsourced to a junior associate.

Fixed-Fee, No Surprises

All ESOP work is priced upfront. You will never receive an unexpected invoice during an exercise window.

PAS-3 & MGT-14 Specialists

We track every ROC deadline. Our clients have a zero-penalty record on PAS-3 and MGT-14 filings.

Registered Valuer Network

Empanelled IBBI-registered Registered Valuers deliver Black-Scholes FMV reports — audit-ready, every time.

Audit-Ready Ind AS 102

Our Ind AS 102 workings and disclosure notes are reviewed by a CA before delivery — zero audit queries on ESOP in our client base.

Startup-Friendly Process

We have set up ESOPs for 100+ startups from seed to pre-IPO. We speak the language of founders, not just compliance.

Cross-Border ESOP Expertise

FEMA compliance for ESOPs with foreign shareholders or non-resident employees, including FC-GPR and RBI reporting.

Real Results from Real Clients

Scheme setup wrapped in under 6 weeks

Accorp's ESOP team handled our entire scheme setup — from drafting to ROC filings — in under 6 weeks. The fixed-fee model gave us clarity from day one.

Co-founder

SaaS Startup

Audit-ready Ind AS 102 workings

The valuation reports were audit-ready and delivered on time. Our Series A due diligence sailed through thanks to clean Ind AS 102 workings.

CFO

D2C Brand

Saved us from PAS-3 penalties

We didn't even know PAS-3 had a 30-day deadline until Accorp flagged it. They've saved us from penalties multiple times during exercise windows.

Head of People

Fintech