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CS Executive · Tax Laws and Practice · Income under the Head Salary

Mr. Iyer's employer, an eligible start-up, allotted him sweat equity shares in tax year 2026-27. Under section 392(3) of the Income-tax Act, 2025, the employer deducting tax on this perquisite must apply which rates?

The start-up must deduct tax at the rates in force for the tax year in which the sweat equity share or specified security is allotted or transferred, here 2026-27. The later sale year or incorporation year does not determine the rate, and it is not the ordinary average rate.

  1. ARates in force for the tax year in which the specified security or sweat equity share is allotted or transferredCorrect
  2. BRates in force for the tax year in which Mr. Iyer later sells the shares
  3. CRates in force for the tax year in which the start-up was incorporated
  4. DThe average rate on estimated salary for the year of sale

Explanation

Section 392(3) says an eligible start-up paying income of the nature in section 17(1)(d) deducts tax on the basis of rates in force for the tax year in which the security or sweat equity share is allotted or transferred. The sale year is irrelevant to the deduction rate, so the sale-year option is wrong.

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