Centre Mulls Extending Tax Deferral On ESOPs For DPIIT Startups: Report

SUMMARY

The option of four-year tax deferral, which was introduced in 2020, is currently limited to over 4,000 startups certified by the Inter-Ministerial Board

If the policy materialises, more than 1.97 Lakh startups recognised by the DPIIT will have an option to defer tax on ESOPs

The recent data released by commerce minister Piyush Goyal, DPIIT recognised 1,97,692 startups under the Startup India initiative as of October 2025

With the Union Budget 2026-27 around the corner, the government is reportedly considering extension of four-year tax deferral on employee stock option plans (ESOPs) to all the startups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT).

Citing sources, ET reported that officials are looking into the issue ahead of the Budget and the final decision will be made after deliberations. Notably, the option of four-year tax deferral, which was introduced in 2020, is currently limited to over 4,000 startups certified by the Inter-Ministerial Board (IMB).

If the policy materialises, more than 1.97 Lakh startups recognised by the DPIIT will have an option to defer tax on ESOPs.

Currently, when an employee’s ESOPs vest (conversion from options to stock), the difference between the share’s market value and the exercise price is treated as salary due to which the employee is liable to pay tax immediately. With this policy, employees can postpone paying that tax for four years instead of paying it at the exercise date.

Notably, the stakeholders in the startup ecosystem have been asking for a more employee-friendly ESOP taxation framework for a while now. However, the issue has gained prominence now amid a startup IPO boom. While 18 startups went public last year, over 40 are eyeing a public listing this year.

As per the recent data released by commerce minister Piyush Goyal, DPIIT recognised 1,97,692 startups under the Startup India initiative as of October 2025. Maharashtra continues to lead on this front with 34,444 DPIIT-recognised startups in the state having generated more than 3.76 Lakh direct jobs.

Of these, 4,147 startups received certificates of eligibility under Section 80-IAC, which allows them to claim tax deduction for three consecutive assessment years.

It is pertinent to note that finance minister Nirmala Sitharaman abolished angel tax in the July 2024 budget. Relief on ESOPs will address another long-standing demand of the startup ecosystem.