New Delhi, June 22 -- ESOPs (Employee stock option plans) are a component of compensation packages, especially in startups and technology companies. They give employees the right to acquire equity shares of the company after meeting certain vesting conditions, allowing them to benefit from the firm's future growth.

The stock benefit is treated as a part of salary for tax purposes. However, the tax liability does not arise at just one stage. Employees may have to pay tax when they exercise their options and again when they sell the shares. Some employees of eligible startups can also defer the tax payable at the time of exercise, providing relief from an immediate tax burden.

ESOPs are generally taxed at two stages:

When an employee exe...