If you leave before your options vest, the unvested options lapse on your exit and you get nothing for them. Vested options stay yours only if you exercise them inside the window your plan sets, which means paying the strike price and tax on the gain, often before you can sell a share. For Mansi, one month either side of her cliff is the difference between losing all 8,000 options and keeping 2,000 worth ₹4,80,000 at the latest value, for ₹2,04,800 in strike and tax.
What happens to unvested options when you leave?
For an unlisted company, rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 settles it: on resignation or termination, all options not vested on that day expire. Vested options can be exercised within the period the scheme specifies, unless the plan lapses them too, for example on dismissal for misconduct. SEBI's 2021 share-based benefits regulations apply the same rule to listed companies. The exception under both: on death or permanent incapacity, everything granted vests at once. A foreign parent's plan follows its own terms.
Both also require at least a year between grant and vesting, so, death and incapacity apart, nothing can vest in the first 12 months after your grant date. That date can be later than your joining date, and 12 months is the shortest ESOP vesting cliff an Indian company's plan can have.
The ESOP exercise window is the plan's choice too: the rules set no minimum, and plans range from a few weeks to several years.
What does leaving at month 11 or month 12 cost?
Mansi earns ₹42 lakh CTC at a funded start-up, about ₹2,38,700 a month in hand (worked out as in CTC vs in hand salary). She holds 8,000 options granted when she joined, vesting over four years with a one-year cliff, strike ₹40, latest fair value ₹240, and is 11 months in with an offer.
If her exit falls before the first anniversary of her grant, her 8,000 options are all unvested, so they lapse.
If it falls on or after that anniversary, a quarter vests: 2,000 options, and the other 6,000 lapse. To keep vested ESOPs after leaving, she must exercise inside the window:
- Strike: 2,000 × ₹40 = ₹80,000
- Perquisite: (₹240 − ₹40) × 2,000 = ₹4,00,000, taxed as salary
- Tax at 31.2% (30% plus 4% cess, new regime, FY 2026-27): ₹1,24,800
That is ₹2,04,800 in cash, most of a month's pay, for shares worth ₹4,80,000 at the latest value. The perquisite is taxed under section 17(1)(d) of the Income-tax Act, 2025 (section 17(2)(vi) of the 1961 Act), and the company deducts TDS on it under section 392 (section 192 of the 1961 Act). If you exercise after your last day, there is no salary left to deduct it from, so expect to be asked for it with the strike.
For unlisted shares, fair value comes from a SEBI-registered merchant banker's valuation dated up to 180 days before the exercise, so a new round at a higher price raises the tax. The shares may be impossible to sell until a buyback, a secondary sale or a listing, so the ₹2,04,800 can be locked up for years, or lost if the company fails. How the later sale is taxed is in ESOP tax in India.
How much cash does keeping 2,000 options take at other salaries?
The tax on the ₹4,00,000 perquisite depends on where it pushes your income for the year. New regime, FY 2026-27:
| Gross salary before the exercise | Tax on ₹4,00,000 | Cash with ₹80,000 strike |
|---|---|---|
| ₹15 lakh | ₹74,100 (18.5%) | ₹1,54,100 |
| ₹20 lakh | ₹1,00,100 (25.0%) | ₹1,80,100 |
| ₹25 lakh to ₹46 lakh | ₹1,24,800 (31.2%) | ₹2,04,800 |
| ₹48 lakh | ₹2,15,800 (54.0%, marginal relief) | ₹2,95,800 |
| ₹55 lakh | ₹1,37,280 (34.3%) | ₹2,17,280 |
With the perquisite, Mansi's income is about ₹41.8 lakh, under the ₹50 lakh line where a 10% surcharge on the whole year's tax starts. From about ₹46.75 lakh gross the perquisite crosses that line: even with marginal relief, the rate climbs to about 62% just above ₹50 lakh gross and falls back to 34.3% from about ₹52.4 lakh. Tax on bonus works through the same edge.
Does the start-up tax deferral help if you are leaving?
Barely. An eligible start-up can collect the tax later, under sections 392(3) and 289(3) of the 2025 Act (sections 192(1C) and 156(2) of the 1961 Act). To qualify, it must be incorporated from 1 April 2016 and before 1 April 2030, have turnover up to ₹300 crore (the limit since 1 April 2026), and hold a certificate from the Inter-Ministerial Board of Certification.
The tax falls due 14 days after the earliest of three dates: 60 months from the end of the tax year, a sale of the shares, or the day you stop working for that employer. Only shares from your current employer qualify. Exercise before your last day and it falls due 14 days after you leave; exercise afterwards and there is no deferral. It defers the tax, never cancels it.
What can you do before you resign?
Check whether your plan counts the day you resign or your last working day as the exit, and make sure that day falls on or after the vesting date. An early relieving date or a notice period buyout can pull your last day before the cliff.
If your plan allows it, you can exercise only part: for Mansi, 1,000 options would halve both the strike and the tax. Ask, before you resign, whether the board will extend the window, and whether the company has ever run a buyback or secondary sale.
A joining bonus offered for lost options has its own catch: if you leave before the period it names, you will usually have to repay some or all of it, as joining bonus clawback works out. If your company makes a counter offer, add the options still to vest to its side of the comparison; counter offer maths compares the rest of the package over two years of pay.
Dhi answers questions like what an exercise would cost, using your own numbers, and looks at your cash flow, net worth, protection and goals together. Dhi nudges when something needs attention, never mis-sells and earns no commissions.
Frequently asked questions
This is general information for salaried individuals in India, not personalised financial advice.
