Quick answer: When you switch jobs, your unvested ESOPs usually lapse. Your vested options stay yours, but you must exercise them inside the window in your ESOP policy. Many plans give 30 to 90 days. Exercising triggers salary tax on the gain. So check your deadline, your cash, and your tax before you resign.
Key Facts
- Unvested options usually lapse when you leave. Vested options usually stay with you, but only for a fixed exercise window.
- A common post-exit window is 30 to 90 days. Your own ESOP plan document sets the real deadline.
- Exercising is taxed as salary income on the gap between market value and your exercise price. Selling later is taxed as capital gains.
- For unlisted shares, a gain is long-term after 24 months from allotment. It is taxed at 12.5%, as per current Income Tax rules (verified Oct 2026).
Changing jobs is exciting. But your ESOPs can quietly turn into a problem if you ignore them. Many people lose lakhs because they miss a deadline. Others exercise in a hurry and then get a big tax bill they did not plan for.
An ESOP (Employee Stock Option Plan) gives you the right to buy your company’s shares at a fixed price. This guide explains what to do with that right before you resign. We keep it simple and use real rupee examples.
What happens to your ESOPs when you resign?
Your ESOPs are split into two parts when you leave. Vested options are the ones you have already earned. Unvested options are the ones you have not yet earned.
| Type of option | What usually happens | What you should do |
|---|---|---|
| Unvested | Lapses on your last day. Goes back to the company. | Check if your next vesting date is close. Think about it before you give notice. |
| Vested | Stays yours, but only for the exercise window. | Note the deadline. Decide early whether to exercise. |
| Already exercised shares | Yours, like any other shares you own. | Keep records for tax. Plan when to sell. |
The window after you leave is called the post-exit exercise period. Many companies keep it between 30 and 90 days. Some give less. A few give more. Your ESOP plan document and grant letter will tell you.
If you are fired for cause, the rules can be harsher. The company may cancel even your vested options. So read the exit clauses before any difficult conversation.
Why does your exit date matter so much?
Your last working day starts the exercise clock. Let us say a company gives 60 days. If you leave on 31 October, your window ends around 30 December. After that, your vested options expire.
A company also needs time to process your request. Do not wait for the last week. Send your request in writing and keep proof.
What are your choices?
| Choice | When it can make sense | Main risk |
|---|---|---|
| Exercise and hold | You trust the company’s future. You can afford the price and the tax. | You pay tax now but cannot sell soon. The shares may lose value. |
| Exercise and sell | The company is listed, or a buyback or secondary sale is on offer. | Sale timing, lock-ins, and company approval. |
| Let the options lapse | The exercise cost and tax are high compared with the likely gain. | You lose the upside if the company does well later. |
| Ask for a longer window | You cannot raise cash in time. | Not guaranteed. Needs company approval, in writing. |
Deepak Gokul holds the CWM® certification, is NISM-Series-XVII: Retirement Adviser Certified, and is an IRDAI Licensed Insurance Advisor. We see this same ESOP question every year from salaried families in Chennai and across India. The families who plan early usually make calmer choices.
How are ESOPs taxed in India?
ESOPs are taxed twice, at two different moments. First, you pay tax when you exercise. Second, you pay tax when you sell. Let us look at each one.
| Stage | How it is taxed | Who deducts the tax |
|---|---|---|
| 1. Exercise | (Market value on exercise date − exercise price) × number of shares. Taxed as salary at your slab rate. | Your employer deducts TDS. |
| 2. Sale | Capital gains. Your cost is the market value on the exercise date. | You pay it yourself in your tax return, unless you sell on a stock exchange. |
Here are the capital gains rules, as per the Income Tax Department and current Finance Act rates. Please verify the latest rates before you act.
- Unlisted shares: Hold for more than 24 months from allotment for long-term gains at 12.5%. Before that, gains are taxed at your slab rate.
- Listed shares: Hold for more than 12 months for long-term gains at 12.5%. The first ₹1.25 lakh of long-term gains in a year is exempt. Shorter holding is taxed at 20%.
The holding period starts from the allotment date, not the date you exercised the option. This is a common mix-up.
What does this look like in rupees?
Take Priya, who works in Chennai. She has 1,000 vested options with an exercise price of ₹100. The company’s market value on the exercise date is ₹600. She is in the 30% tax slab.
| Step | Calculation | Amount |
|---|---|---|
| Cash to buy shares | 1,000 × ₹100 | ₹1,00,000 |
| Perquisite (taxed as salary) | 1,000 × (₹600 − ₹100) | ₹5,00,000 |
| Tax at 30% + 4% cess | ₹5,00,000 × 30% × 1.04 | ₹1,56,000 |
| Total cash needed on day one | ₹1,00,000 + ₹1,56,000 | ₹2,56,000 |
So Priya needs about ₹2.56 lakh in cash. She cannot sell the shares yet if the company is unlisted. Now suppose she sells after 24 months at ₹900 a share.
Her gain is ₹900 − ₹600 = ₹300 per share, or ₹3,00,000 in total. Long-term tax at 12.5% plus 4% cess is ₹39,000. This example ignores surcharge and brokerage. Your own numbers will differ.
The lesson is simple. The tax at exercise is the big surprise. Plan for it before you resign.
Should you exercise before you leave?
There is no single right answer. But these questions help you decide. Answer them honestly.
- Can I pay the exercise price and the tax without using my emergency fund?
- Can the company’s shares be sold in the next few years? Is there an IPO, buyback, or secondary sale plan?
- How much of my savings would sit in one company’s shares? Would I be comfortable if the value fell by half?
- Does my new job give me enough cash flow to cover this?
If you answer “no” to the first question, think hard before you exercise. A paper gain is not cash. Do not borrow to pay ESOP tax on shares you cannot sell.
Does the start-up tax deferral help you?
Some start-ups can defer the exercise tax. This applies only to eligible start-ups recognised by DPIIT, and only if the employer opts in. Check with HR if this applies to you.
Under this rule, the tax is not due at exercise. It falls due within 14 days of the earliest of three events. First, 48 months from the end of the assessment year of allotment. Second, you leave the company. Third, you sell the shares.
So here is the catch. Leaving your job can make the deferred tax due. If your company used this deferral, ask HR for your estimated tax before you resign.
What if your company is foreign or you are an NRI?
Many Indian tech employees get ESOPs or RSUs from a foreign parent company. If you hold such shares, report them in Schedule FA of your income tax return. You must do this even if you have not sold them. Ask a Chartered Accountant about the tax rules for foreign shares.
If you are an NRI, tax rules and RBI rules for your ESOPs can differ. Get advice from a CA before you exercise.
What should you ask HR before your last day?
- How many options are vested, and what is my exact exercise deadline?
- What is the exercise price and the latest fair market value?
- What will my TDS be, and when must I pay it?
- Is there a buyback, secondary sale, or IPO plan?
- Can I get a written extension if I need more time?
- Will I get all my papers, such as Form 16, the exercise letter, and share certificates or demat credit?
Which mistakes should you avoid?
First, do not ignore the deadline. A missed window usually means the options expire. Second, do not exercise just because the price looks cheap. Third, do not forget the tax. Fourth, do not put too much of your wealth into one company.
Finally, do not mix ESOP money with your safety net. Keep your emergency fund separate. Your ESOP decision should fit your family’s goals, such as child education and retirement.
Frequently Asked Questions
What happens to my ESOPs if I resign?
Unvested options usually lapse on your last working day. Vested options usually stay with you, but only for a set period after you leave. Many companies give 30 to 90 days. Your ESOP plan document decides the exact deadline, so read it before you resign.
Do I lose my vested ESOPs if I miss the exercise window?
Yes, in most plans. Once the post-exit window ends, your vested options expire and cannot be revived. Some companies extend the window or allow exceptions, but only if the plan says so or the board agrees. Ask HR in writing before your last day, and note the exact date.
Is tax payable when I exercise ESOPs?
Yes. The difference between the market value on the exercise date and your exercise price is taxed as salary income. Your employer deducts TDS on it. This tax is due even if you cannot sell the shares yet. So you need cash for both the exercise price and the tax.
How are ESOP shares taxed when I sell them?
Selling is taxed as capital gains. Your cost is the market value on the exercise date, not your exercise price. Holding period starts from the allotment date. For unlisted shares, gains after 24 months are long-term and taxed at 12.5%. For listed shares, the long-term period is 12 months.
Can I carry ESOPs from my old company to my new company?
No. ESOPs belong to the company that granted them. You cannot move them to a new employer. You can only exercise your vested options with the old company, within its window. Your new employer may offer its own ESOPs, but that is a separate grant with its own vesting schedule.
Should I exercise my ESOPs before I leave or after?
It depends on the deadline, your cash, and the company’s outlook. Exercising early starts your holding period clock, but it also triggers tax today. If you cannot afford both the price and the tax, think carefully before you exercise. Please speak to a Chartered Accountant and a financial planner first.
Read more on our blog
- Tax mistakes salaried employees make
- Retirement planning for IT employees
- Where to keep your emergency fund
- Why you need your own health cover when you change jobs
- NRI financial planning in India
Official source: Income Tax Department — Taxation of ESOPs
Planning a job switch in Chennai?
Let us look at your ESOPs together with your goals, tax, and emergency fund before you resign. Book a financial planning consultation at our Pallikaranai office.
Deepak Gokul specialises in goal-based financial planning, child education planning, SIP investments, mutual fund advisory, and retirement planning for families across the globe. With his Chartered Wealth Manager (CWM®) certification and specialised training in retirement advisory, Deepak helps clients build long-term wealth through structured, disciplined financial planning.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This content is for illustrative and educational purposes only. We deal in Regular Plans. Tax rules change often. This article is general education, not tax advice. Please confirm your own case with a Chartered Accountant.