Now Reading: ITAT Says Flipkart ESOP Buyback Gains Are Long-Term Capital Gains
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ITAT Says Flipkart ESOP Buyback Gains Are Long-Term Capital Gains
The Bengaluru Income Tax Appellate Tribunal has ruled that gains from the repurchase of vested, unexercised employee stock options are taxable as long-term capital gains, not salary perquisites. The case involved Flipkart…
The Story in Brief
The Bengaluru Income Tax Appellate Tribunal has ruled that gains from the repurchase of vested, unexercised employee stock options are taxable as long-term capital gains, not salary perquisites. The case involved Flipkart executive Pramod Kumar Jain, who received Rs 2.33 crore when 2,653 options were repurchased. Jain had reported the amount as capital gains, but the assessing officer treated it as salary income. The tribunal said an option becomes a specified security only after exercise and share allotment. It treated the options as capital assets and the repurchase as their transfer.
The ruling concerns a narrow situation. Tax treatment differs when an employee exercises options and acquires shares, said tax professionals cited by ET and Inc42. Ashish Karundia also pointed to a separate buyback provision that was not considered by the tribunal. Inc42 reports that courts have issued conflicting rulings on similar ESOP payouts, leaving room for further disputes.
The Indian Opinion
The lazy claim that every ESOP payout is a tax-saving windfall misses the trade-off. Employees who cancel options for cash give up the potential gains from holding shares, while those who exercise them face a different tax treatment. The opposing claim that the ruling settles all ESOP taxation is also too broad. The real test will be whether higher courts accept this distinction and how tax authorities apply the buyback provisions.
Sources (2): legal.economictimes.indiatimes.com, inc42.com
This story was synthesised by AI from the 2 sources linked above.
Updated: this story now draws on 2 sources.
