# ESOP Valuation

> Unlisted companies usually need two ESOP valuations. For employee tax, the fair market value of shares on the exercise date must be determined by a SEBI-registered Category I merchant banker, on that date or up to 180 days before it. For accounting, the fair value of options at grant — typically using Black-Scholes or a binomial model — sets the share-based payment expense under Ind AS 102 or the ICAI guidance note.

Practice: Startup Funding, ESOP & Valuation — https://www.industax.com/services/startup-funding/

A stale or wrong FMV can lead to short deduction of TDS by the employer, so exercise windows should be timed with valuation dates. We coordinate the merchant banker report through our partner network and reconcile it with recent round prices.

For the books, we compute option fair values for each grant, vesting expense schedules and the disclosures auditors and investors expect.

## Key facts

| Item | Detail |
| --- | --- |
| Tax valuation | SEBI-registered Category I merchant banker |
| Valuation date | Exercise date or up to 180 days earlier |
| Accounting | Ind AS 102 or ICAI Guidance Note on share-based payments |
| Models | Black-Scholes, binomial |

## Who needs this

- Companies whose employees are exercising options
- Startups recognising ESOP expense
- Companies preparing for audit or fundraising

## What's included

- Merchant banker FMV coordination
- Option fair value per grant
- Expense schedule and disclosures
- TDS guidance on exercise

## Documents

- Financial statements and projections
- ESOP scheme and grant register
- Recent round documents

## Process

1. **Collect** — Grants, exercises and financials gathered.
2. **Value** — FMV and option values prepared.
3. **Apply** — TDS and accounting entries finalised.

Work that legally requires a SEBI-registered Category I merchant banker is signed by a partner professional; Indus Tax coordinates it.

## FAQs

### Can a CA value shares for ESOP perquisite tax?

No — for unlisted shares, the income-tax rules require a SEBI-registered Category I merchant banker.

### How often is a fresh valuation needed?

The report can be dated up to 180 days before the exercise date, so exercise windows are usually planned around one valuation.

### Do private companies have to expense ESOPs?

Yes, companies following Ind AS or the ICAI guidance note recognise the fair value of options as an expense over the vesting period.

## Official sources

- Income Tax e-Filing portal: https://www.incometax.gov.in/

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Canonical page: https://www.industax.com/services/startup-funding/esop-valuation
Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.