Startup Advisory
The Income-tax Act 2025 Renumbered Everything — Your ESOP Scheme Now Cites Repealed Sections
Lekha Editorial Team
CA-reviewed · Published
This is an administrative change with no effect on what tax is owed. It does affect every document that cites a section number — and ESOP scheme documents cite several.
What was renumbered
The Income-tax Act 2025 restructures the 1961 Act. The substantive rules on ESOP perquisite taxation are unchanged: the perquisite still arises at exercise, is still computed against a merchant banker's fair market value certificate, and is still subject to withholding by the employer.
What changed is the citations.
- Section 80-IAC (startup tax holiday) → Section 140
- Section 192 (TDS on salary) → Section 392
- Rule 3(9)(ii), Income-tax Rules 1962 → Rule 15, Income-tax Rules 2026 (from 1 April 2026)
- Form 16 → Form 130
- Section 56(2)(viib) → omitted; not reintroduced
Which of your documents are affected
ESOP scheme documents routinely cite the perquisite and withholding provisions by number, as do grant letters, board and shareholder resolutions approving the scheme, and employee-facing tax explainers.
None of these become invalid. But a scheme that cites a repealed numbering creates avoidable friction — with auditors, with employees asking questions at exercise, and in any diligence exercise where a reviewer is checking whether documents have been maintained.
How to handle the transition
Cite both. Where a document refers to the old numbering, the cleanest correction states the provision under both Acts rather than silently substituting — for example, Section 17(2)(vi) of the Income-tax Act 1961, corresponding to the equivalent provision of the Income-tax Act 2025.
Clients, auditors and employees will be working from mixed-vintage paperwork for several years. A document that acknowledges both numbering systems is easier to reconcile than one that appears to contradict an older grant letter.
Key takeaway
Nothing about your ESOP obligations has changed. The documents describing those obligations now cite provisions that no longer carry those numbers, and the cheapest time to fix that is before an employee exercises and asks.
Frequently asked questions
Does this change how much tax my employees pay on ESOPs?
No. The renumbering is administrative. The perquisite still arises at exercise, is computed the same way against a merchant banker certificate, and capital gains still apply on eventual sale.
Do we have to reissue grant letters already given to employees?
No. Existing grants remain valid. The practical step is to update the template used for new grants, and to note the correspondence between old and new numbering in your scheme documentation so anyone reading an older letter can reconcile it.
What is the deadline?
There is no filing deadline attached to this. The sensible trigger is your next exercise event after 1 April 2026, when the perquisite computation and withholding will be done under the new numbering and employees will ask questions.