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Indian-American founder criticizes India’s ESOP tax rules
Chinmay Singh said taxing stock options before employees can sell shares discourages ownership and wealth creation.
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Malvika Choudhary - Wed, 17, Jun 2026
- 17:24 EDT
- 40
Chinmay A. Singh / X/ Chinmay A. Singh
Indian-American entrepreneur Chinmay Singh criticized India's employee stock option (ESOP) tax regime, saying it makes it difficult for startups to offer equity to employees, particularly engineers from smaller towns and rural areas.
Singh, the San Francisco-based founder of startup iWish, raised the issue in a post on X, where he described building a distributed engineering team across Uttar Pradesh, Bihar and Assam for his US-based startup.
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He said many of the engineers were exceptionally skilled but often overlooked by major startups because they lacked polished English-language skills.
“They were some of the best engineers I have worked with anywhere. The only thing they lacked was the ability to speak English like someone who went to a Delhi private school,” Singh wrote.
According to Singh, he paid those engineers salaries comparable to their counterparts in Bengaluru and wanted to extend the same ownership opportunities available to startup employees in the United States.
“Now I wanted to give them what my US team members had: ownership. A real piece of what they were building,” he said.
How babus harm Indian Engineers:
— Chinmay A. Singh (@chinmay) June 16, 2026
I ran a US based startup. My engineering team was in India. Not in Bangalore or Delhi, but scattered across small towns and villages around UP/Bihar/Assam.
They were some of the best engineers I have worked with anywhere. The only thing they…
However, Singh argued that India's tax framework makes equity ownership difficult for employees of private startups. Under existing rules, the difference between the fair market value of shares and the exercise price of stock options is generally treated as a taxable perquisite when employees exercise their options, even if the shares have not been sold and no cash has been realized.
“The moment an Indian employee exercise their options (convert them to shares), without selling anything they get taxed on the paper gain as salary,” Singh wrote, adding that employees may face tax liabilities on shares that cannot yet be sold.
He contrasted the Indian system with the United States, where startup employees typically incur taxes when shares are sold, allowing them to pay taxes from actual proceeds rather than unrealized gains.
Singh acknowledged the existence of the deferral provision but argued that it covers only a small fraction of startups. He called for a broader reform that would tax employee shares only when they are sold.
“The fix is one line: tax the shares when they are sold, not when they are bought. Every developed country does it. India could do it tomorrow but it does not,” he said.
Singh blamed bureaucratic inertia rather than political leadership for the issue, writing that the problem persists “due to babus (not Nirmala S).”
India introduced an ESOP tax deferral mechanism through the Finance Act, 2020, allowing employees of certain eligible startups to postpone tax payments until a later event such as the sale of shares, the employee leaving the company, or the expiry of a specified period.
However, the benefit applies only to startups that meet specific eligibility criteria, including recognition under government startup schemes.
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