Now Reading: ITAT rules Flipkart ESOP buyback is capital gain, not salary
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ITAT rules Flipkart ESOP buyback is capital gain, not salary
Livemint reports that the Bengaluru Income Tax Appellate Tribunal (ITAT) held that Rs 2.33 crore received by a Flipkart executive for repurchasing vested but unexercised employee stock options (ESOPs) should be taxed…
The Story in Brief
Livemint reports that the Bengaluru Income Tax Appellate Tribunal (ITAT) held that Rs 2.33 crore received by a Flipkart executive for repurchasing vested but unexercised employee stock options (ESOPs) should be taxed as long-term capital gains (LTCG) at 12.5%, not as salary perquisite at slab rates above 30%. The tribunal reasoned that until an employee exercises the option and receives shares, they hold only a contractual right, a capital asset, not a salary benefit.
Under Section 17(2)(vi), the ESOP benefit is taxed as salary only when shares are actually allotted. Experts caution that this does not give employees a free choice: the company must structure the transaction as a repurchase and cancellation of options. The tax department could also invoke GAAR or specific buyback rules to challenge the arrangement.
The Indian Opinion
This ruling is being read as a tax-saving hack for employees, but the real picture is more complicated. Companies must structure the buyback as a cancellation of options, not shares, and the tax department can still invoke GAAR or special buyback rules under Section 46A. The taxpayer won this round on a literal reading of the law. The test now: will the tax department challenge the order in a higher court, or will companies redesign ESOP liquidity programmes to favour this route? The next ITAT ruling on similar facts will tell.
Source: livemint.com
This story was synthesised by AI from the source linked above.
