Equity compensation is becoming increasingly common in India, especially at product companies and startups. Understanding the difference between salary and stock can mean the difference between making a great career decision and a costly mistake.
Types of equity in India: ESOPs (Employee Stock Ownership Plans): Common at startups. You receive options to buy shares at a set price (strike price) after a vesting period (usually 4 years with 1-year cliff). RSUs (Restricted Stock Units): Common at large public companies (Google, Amazon, Microsoft). You receive actual shares that vest over time. The key difference: RSUs have immediate real value (since the company is publicly traded), while ESOPs have value only if the startup achieves a successful exit.
How to evaluate ESOPs: Ask these questions before accepting: What percentage of the company do my options represent (on a fully diluted basis)? What's the latest company valuation? What's the strike price? What's the vesting schedule (typically 4 years, 1-year cliff, monthly/quarterly vesting)? What happens to my options if I leave? Is there a buyback policy? What's the company's path to exit (IPO, acquisition)? And most critically: what's the realistic probability of a successful exit?
Taxation in India (2026): ESOPs: Taxed at two points — (1) when you exercise the options (difference between fair market value and strike price is taxed as perquisite), and (2) when you sell the shares (capital gains tax). The 2020 ESOP taxation rules allow startup employees to defer tax payment for up to 5 years from exercise or until sale/leaving, whichever is earlier. RSUs: Taxed when they vest (fair market value on vesting date is treated as salary income).
The golden rule: Never accept a significantly lower salary for equity alone. Your salary needs to cover your living expenses and financial commitments. Treat equity as upside — a bonus that may or may not materialize. If you can't afford a 20% salary cut without stress, the equity isn't worth the risk.