1. Founder shares vs sweat equity — why they are taxed differently
Founder shares you bought at par when the company was a blank cap table are not taxed at issue — you actually paid for them. The tax event arrives years later, when you sell.
Sweat equity is different. Shares issued to you for your services or know-how are a perquisite under Section 17(2), taxed on their fair market value on the date of issue — in the year of issue. One is free at the gate; the other is a salary event in disguise.
2. The ESOP pool and the startup deferral (Section 192(1C))
Granting ESOPs triggers a two-stage tax — a perquisite at exercise (fair market value minus exercise price) and capital gains at sale. The cash crunch is brutal when the shares are still illiquid.
An eligible DPIIT-recognised startup can defer the tax on the ESOP perquisite under Section 192(1C) — pushing the perquisite-tax pay date out until the earlier of the sale of shares, the employee leaving, or five years from exercise.
3. When you move countries mid-startup
The ESOP perquisite is sourced to the country where you performed the work that earned it. So a grant earned while you were a London resident, vested while you were an NRI, exercised after your return as an RNOR, and sold once you are Ordinarily Resident — touches three or four tax systems, each with its own claim.
The dates that move the needle are vest, exercise and sale. Co-ordinate them with your residency calendar rather than letting them happen on autopilot.
4. Secondary sales and partial exits
Secondary sales of unlisted founder shares follow the unlisted-share rules: long-term after 24 months, taxed at 12.5%. As an NRI, you also get the Section 48 forex cushion on shares of an Indian company — the gain is computed in your original purchase currency.
Proceeds route through NRO or NRE and repatriate within the rules; a treaty may help with credit on the home side.
Example — London founder. A founder living in London sells a slice of his Bengaluru-company shares in a secondary. The 24-month clock makes the gain long-term, taxed at 12.5% in India. Section 48 lets him compute the gain in GBP terms, softening rupee depreciation. Proceeds flow through NRO; repatriation follows the standard FEMA route with Form 15CA/15CB.
5. Founder-equity checklist
- Have you separated founder shares from sweat equity in your records?
- Is your startup DPIIT-recognised — and have you considered Section 192(1C)?
- Is your ESOP vesting calendar mapped against your move dates?
- Are you tracking the 24-month clock for long-term status on each tranche?
- Is repatriation routed cleanly through NRO/NRE, with 15CA/15CB ready?
Read alongside founder residency & exit timing, POEM & company residence, GIFT City for NRI founders and startup flips & share swaps.