The startup boom in India may be creating massive wealth through the issuance of Employee Stock Option Plans (ESOPs), but the huge tax makes it hard for them to reap the real benefit.
Over 1.5 million employees are sitting on paper wealth and waiting for the startup to list on the exchange or the companies to announce a favourable but back plan. The tax burden on the realised profit is so huge that it almost eats out a major portion of the profit.
The data sourced from Zomato and Swiggy reveals a dark side of ESOPs.
Zomato’s early employees could have exercised their ESOPs at ₹0.45 per share in 2012 and paid only ₹0.18 per share in taxes.
By the time of Zomato’s IPO in 2021, its FMV (fair market value) had risen to ₹76 a share. Employees who waited patiently to reap the full benefits ended up paying a tax of ₹29.64 a share, an increase of 165 times in tax outgo.
Similarly, employees who waited for Swiggy’s IPO in 2024 saw their tax bill skyrocket to ₹151.5 per share.
However, this missed opportunity for wealth creation can be addressed with the right financial tools.
ESOPPDHAN offers a solution that empowers employees to unlock the full potential of their ESOPs.
ESOPPDHAN solves this problem by offering India’s first non-recourse ESOP financing, which helps employees exercise their stocks without financial strain.
Employees using the funding need not repay the loan or any EMI until a liquidity event, such as an IPO or buyback, occurs.
Early exercise means that the tax liability shifts from the highest salary tax bracket (up to 39 per cent) to the much lower long-term capital gains tax rate (12.5 per cent).
Shravan Shroff, co-founder of ESOPPDHAN said employees think waiting until the IPO will maximise their gains, but the tax liability skyrockets along with the company’s valuation during an IPO, a huge economic disadvantage for employees.
Nitin Agarwal, co-founder of ESOPPDHAN, said the company provides a strategic solution to ensure employees do not miss out on the financial rewards of their hard work.
By enabling early exercise with smarter financing, ESOPPDHAN helps employees seize opportunities, reduce tax burdens and build real wealth.