ESOP TDS deferral under ITA 2025: the 60-month clock and the IMB certificate test
ITA 2025 sets the ESOP TDS deferral at 60 months from the tax-year end — the same endpoint as the 1961 Act's 48 months from the assessment-year end. Only an s.140 eligible start-up with the IMB certificate qualifies.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Every ESOP filing season, the same misconception surfaces: "My company is DPIIT-recognised, so my ESOP TDS is automatically deferred." It is not. The deferral applies only to employees of an eligible start-up meeting all three statutory conditions — including a separate Inter-Ministerial Board certificate. Miss one condition and the employer must deduct TDS at exercise.
Legal basis: Sections 392(3), 289(3) and 140, Income-tax Act, 2025 (ITA 2025).
The 60-month rule
Where specified securities or sweat equity shares are allotted or transferred by a current employer that is an eligible start-up, the tax on that perquisite income is payable by the employee within fourteen days after the earliest of: the expiry of sixty months from the end of the relevant tax year, the sale of the securities, or the employee leaving the employer ("after the expiry of sixty months from the end of the relevant tax year; or ... from the date of the sale ... or ... from the date of the assessee ceasing to be the employee," whichever is earliest) (ITA 2025, s.289(3)).
The employer's deduction obligation mirrors this: a person that is an eligible start-up, paying income of the nature specified in Section 17(1)(d), deducts or pays tax on the basis of the rates in force for the allotment/transfer year, within the time specified for the payee in Section 289(3) ("Any person, being an eligible start-up referred to in section 140," paying "any income of the nature specified in section 17(1)(d)") (ITA 2025, s.392(3)).
The three conditions — all must hold together
"Eligible start-up" means a company or LLP engaged in eligible business fulfilling all of the following (ITA 2025, s.140):
- Incorporation window — "incorporated on or after the 1st April, 2016 but before the 1st April, 2030" (ITA 2025, s.140).
- Turnover cap — "the total turnover of its business does not exceed one hundred crore rupees in the tax year relevant to the tax year for which deduction under sub-section (1) is claimed" (ITA 2025, s.140).
- IMB certification — the start-up "holds a certificate of eligible business from the Inter-Ministerial Board of Certification" as notified by the Central Government (ITA 2025, s.140).
DPIIT recognition alone is not the statutory test — the certificate of eligible business from the Inter-Ministerial Board is a separate requirement. A start-up with DPIIT recognition but no IMB certificate is not an eligible start-up for this deferral, and the employer must deduct TDS at exercise.
What it means for your return
If your employer deducted nothing and holds no IMB certificate, the perquisite does not vanish — compute it, offer it as salary income, and reconcile advance tax and interest consequences with your CA.
Practical checklist
- Verify IMB status — ask your Company Secretary to produce the certificate of eligible business from the Inter-Ministerial Board. If it does not exist, no deferral applies.
- Read Form 16 — check whether TDS was deducted at exercise or deferred with the statutory reference.
- If deferred — diary the trigger dates: 60 months from the financial year-end of allotment, any sale, and any exit; the earliest governs, with payment due within fourteen days.
- Illustration — a Bengaluru SaaS company, DPIIT-recognised since 2021, allots shares on exercise in FY 2026-27 (tax year 2026-27, governed by ITA 2025) but holds no IMB certificate. Result: TDS applies at exercise and each employee offers the perquisite as salary income. Had it held the IMB certificate (with the other conditions met), the 60-month deferral would apply.
This post is for general information only. ESOP tax treatment depends on specific facts — consult a CA before making filing decisions.
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