ESOP allows an employee to own equity shares of the employer company over a certain period. ESOPs have recently gained popularity in India especially in the startup space. Since the startups are operating with limited liquidity, at least, in the initial stages, they attract talent with comparatively less payout in cash with an option to purchase the equity shares of the company at a later stage decided based on mutual agreement.
Before we venture into the ESOP taxation, it is pertinent to familiarize ourselves with the specific terminologies used under ESOP.
The date of agreement between the employer and employee to give an option to own shares (at a later date).