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ITAT: Unexercised Flipkart ESOP Repurchase Taxed Under LTCG
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Income Tax Appellate Tribunaltax

ITAT: Unexercised Flipkart ESOP Repurchase Taxed Under LTCG

August 7, 2026

The Income Tax Appellate Tribunal (ITAT) ruled that the repurchase of unexercised Employee Stock Options (ESOPs) by Flipkart should be taxed under Long-Term Capital Gains (LTCG) rather than as a salary perquisite.

ITAT Ruling on ESOP Repurchase Taxation

The Income Tax Appellate Tribunal (ITAT) has clarified that the repurchase of unexercised ESOPs by Flipkart should be treated as Long-Term Capital Gains (LTCG) and not as a salary perquisite under Section 17(2)(vi) of the Income Tax Act.

The ITAT observed that these options would only attract perquisite taxation once exercised and shares allotted. Thus, prior to this point, any repurchase transaction would fall within the RTCG category.

The bench stated, "ESOPs can indeed be taxed as perquisites but only when they have been exercised by the employee."

This determination by the ITAT significantly impacts businesses using ESOPs as part of employee compensation programs, as it allows for more favorable tax treatment until the exercise of options occurs, potentially affecting employee retention strategies.

Citations

  • ITAT Order (2026)
Practice Areas:tax

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