ESOP, Ind AS 102 and 409A Valuation

Which ESOP valuation do you need?

How are options valued under Ind AS 102?

We value the underlying share first and then the option using Black-Scholes, a binomial lattice or a Monte Carlo simulation, depending on the vesting and exercise terms. Volatility, expected life, risk-free rate and expected dividends are drawn from comparable listed companies and government securities, and each input is documented for the auditor.

What a registered valuer can and cannot sign

A registered valuer's report supports the exercise price, Ind AS 102 accounting and sweat equity. For the employee's tax on exercise, however, the fair market value of unlisted shares must come from a SEBI-registered Category I merchant banker (Rule 15 of the Income-tax Rules, 2026). We say at the outset which reports your plan needs, and work with a merchant banker where the tax rule requires one.

Startup valuation by city

About V Viswanathan & Associates

Frequently Asked Questions

Who values unlisted shares for ESOP tax?

For the employee's income tax on exercise, the fair market value of unlisted shares must be determined by a SEBI-registered Category I merchant banker, on a date not more than 180 days before exercise (Rule 3(8)(iii) of the Income-tax Rules, 1962; Rule 15(6)(d) read with Rule 15(8) of the Income-tax Rules, 2026). A registered valuer's report does not meet that rule, though it can be used for Ind AS 102 accounting and to support the exercise price.

Does a registered valuer have to value ESOPs?

Not for an unlisted company's ESOP scheme: Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 leaves the company free to fix the exercise price in line with its accounting policies, with a minimum vesting period of one year. A registered valuer's report is mandatory for sweat equity (Rule 8), and is commonly used to support the ESOP exercise price and Ind AS 102 accounting.

What is an Ind AS 102 valuation?

Under Ind AS 102, equity-settled ESOPs are measured at the fair value of the options at the grant date, using an option pricing model such as Black-Scholes or a binomial model, and the cost is spread over the vesting period. Companies following Indian GAAP apply the ICAI Guidance Note on Accounting for Share-based Payments.

What is a 409A valuation?

Section 409A of the US Internal Revenue Code can tax options granted below the fair market value of the underlying stock. An independent appraisal of the stock is presumed reasonable if it is dated no more than 12 months before the grant (Treas. Reg. §1.409A-1(b)(5)(iv)(B)(2)(i)). It matters to Indian companies whose employees receive options in a US parent company.

Can startups defer tax on ESOPs?

Employees of an eligible start-up (one certified for the start-up tax deduction) can defer the tax on ESOP shares. Under the Income-tax Act, 2025 the tax is payable within 14 days of the earliest of 60 months from the end of the tax year of allotment, the sale of the shares, or the employee leaving the company (section 289(3)), and the employer deducts tax accordingly.

Do you work with companies outside Chennai?

Yes. We work with companies across India from our office at Spencer Plaza, Anna Salai, Chennai, through video consultations, secure document sharing and digitally signed reports and filings. We do not have offices in other cities.

Related Guides and Tools

Law stated as at 27 Oct 2026. Official sources: FEMA and RBI directions (RBI), Companies Act, 2013 (MCA), Registered valuers (IBBI), Income-tax Act, 2025 and Rules, 2026 (CBDT). Reviewed by CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333).