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ITAT: Unexercised Flipkart ESOPs Taxable as LTCG, Not Salary
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Income Tax Appellate Tribunaltax

ITAT: Unexercised Flipkart ESOPs Taxable as LTCG, Not Salary

August 8, 2026

The ITAT ruled that the repurchase of unexercised Flipkart ESOPs is taxable as Long-Term Capital Gains (LTCG) rather than as a salary perquisite, clarifying tax liabilities for employees.

Tax Treatment of Unexercised ESOPs Clarified by ITAT

The Income Tax Appellate Tribunal (ITAT) has ruled that the repurchase of unexercised Employee Stock Options (ESOPs) from Flipkart should be classified as Long-Term Capital Gains (LTCG) rather than being treated as a salary perquisite under Section 17(2)(vi) of the Income Tax Act. This ruling provides crucial clarity on the tax implications for employees receiving ESOP benefits.

The ITAT indicated that while ESOPs can be taxed as perquisites, this only applies at the moment options are exercised and shares are allotted. The Court's interpretation aims to delineate the timing and nature of tax liabilities associated with ESOP compensation, ensuring that employees are not subject to undue tax burdens prematurely.

For tax consultants and corporate advisors, this ruling is pivotal as it sets a precedent for evaluating the tax implications of ESOP schemes. Practitioners should guide companies in aligning their ESOP structures within the legal framework to optimize tax implications for employees.

Citations

  • ITAT Order (2026) TaxScan
Practice Areas:tax

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