Answer 6 questions about your ESOP grant letter. Takes under a minute.
Each section of your grant letter explained — what it means, what to check, and the red flags.
An ESOP grant letter is the document your employer issues when they grant you stock options. It is not the same as your employment contract — it is a separate legal document that governs your equity entirely. It covers: number of options granted, type of plan, your strike price, vesting schedule, exercise window, and what happens to your options if you leave.
ESOPs — most common in Indian startups. You earn the right to buy shares at a fixed price after vesting. You do not own shares until you exercise, and you cannot exercise until options have vested.
RSUs — shares given to you outright when they vest. No exercise payment needed. Tax treatment is different from ESOPs.
SARs — you benefit from share price increase without buying shares. Rarely used in Indian startups.
Your grant letter will state a specific number — say, 5,000 options. This number matters, but it is not your wealth. The common mistake: employees multiply options by the current share price and assume that is what their ESOPs are worth.
Real gain per option = Sale price − Strike price, after tax. A large number of options at a high strike price can be worth less than a smaller number at a low strike price.
The strike price is the fixed price per share you pay when you exercise. Locked in on grant day. The lower your strike price relative to the current share price, the better.
Standard Indian startup schedule: 1-year cliff, 4-year total. Nothing vests in year one. At 12 months, 25% vests at once. The remaining 75% vests in equal monthly or quarterly instalments over 3 more years.
Some plans link vesting to performance milestones. If your grant letter includes performance conditions, understand exactly what those conditions are and who decides whether they have been met.
Two windows exist: during employment and after leaving. Post-departure is the critical one. Most Indian startup plans give you 30 to 90 days to exercise vested options after leaving — for any reason, including voluntary resignation.
Within that window, you must pay the exercise cost (strike price × options) plus income tax on your gain — in cash — with no guarantee of ever being able to sell the shares. Most employees simply walk away from their vested options.
Bad leavers typically forfeit all unvested options. In some plans, bad leavers also forfeit vested options not yet exercised. Good leavers retain vested options and have a defined exercise window.
Some plans restrict exercise to liquidity events only — IPO, acquisition, or company-initiated buyback. Until that event happens, you cannot exercise, regardless of how much has vested. Your paper wealth is locked indefinitely.
A company that has done ESOP buybacks in the past shows they actively create liquidity for employees before an IPO.
At exercise: The gain (share price − strike price) is taxed as employment income at your slab rate — in cash — even though you have not sold any shares yet.
At sale: Further gain from exercise price to sale price is taxed as capital gains. Hold for more than 24 months: LTCG at 12.5% above ₹1.25 lakh threshold. Sell within 24 months: STCG at your slab rate.
At Hissa, we help employees across Indian startups understand their grant letters, assess their ESOP value, and access liquidity before an IPO through our dedicated ESOP secondary fund.
Talk to an ESOP expert at Hissa →