Section 191(1C) read with Rule 26D allows employees of eligible start-ups (Sec 80-IAC recognized) to defer payment of tax on such perquisite

!! ACADEMIC PURPOSE ONLY


“Tax deferred on Sweat Equity Shares / Securities – B/F” which comes up in the Income Tax Return (ITR) forms.

Here’s a clear explanation:

📌 Background: Section 191(1C) & Section 115QA / 192(1C)

  • When an employee receives Sweat Equity Shares or ESOPs (Employee Stock Options) from an employer (especially eligible start-ups), the value is taxable as a perquisite under Section 17(2)(vi).

  • Normally, tax is payable in the year of allotment.

  • However, Section 191(1C) read with Rule 26D allows employees of eligible start-ups (Sec 80-IAC recognized) to defer payment of tax on such perquisite.

📌 What does “Tax Deferred” mean?

Instead of paying tax immediately, the employee can defer payment of tax on such ESOP perquisite.
Tax becomes payable at the earliest of these events:

  1. On expiry of 48 months (4 years) from end of relevant AY, OR

  2. On the date of sale of such shares, OR

  3. On the date of ceasing employment,
    whichever is earlier.

📌 “Tax Deferred on Sweat Equity Shares / Securities – B/F”

  • This is a carry-forward (brought forward) figure of tax liability that was deferred in earlier years but is not yet triggered for payment.

  • Appears in ITR utility under Schedule Part B – TTI (Tax Computation).

  • In the year of trigger (whichever is earlier of above 3 events), this deferred tax becomes payable and is shown as part of self-assessment tax liability.

📌 Example

  • AY 2023-24: You exercised ESOPs worth ₹10 lakh. Tax @30% = ₹3 lakh.

  • Since employer is an eligible start-up, you opted for deferral.

  • In ITR for AY 2023-24, “Tax deferred on Sweat Equity Shares/Securities” = ₹3 lakh.

  • AY 2024-25, 2025-26: Still carried forward → shown as “B/F”.

  • AY 2026-27: If you resign, tax is triggered → that ₹3 lakh (plus interest if applicable) becomes payable in that year.

✅ So, “Tax deferred on Sweat Equity Shares / Securities – B/F” means unpaid deferred perquisite tax carried forward from past years, which the system keeps track of until it becomes payable.


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