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The Income Tax Appellate Tribunal (ITAT) has ruled that gains from the repurchase of unexercised Employee Stock Options (ESOPs) should be taxed as long-term capital gains (LTCG) and not as salary income. This decision clarifies the tax treatment for such options, treating them as capital assets rather than an immediate component of an employee’s salary.
The ruling stems from a case involving a Flipkart executive who received ₹2.33 crore from repurchased stock options. The ITAT’s decision emphasizes that ESOPs are only considered part of salary perks at the point of exercise. Therefore, any gains derived from the buyback of options that have not yet been exercised fall under the purview of capital gains tax.
This judgment provides significant clarity for employees holding ESOPs, particularly in the tech sector where such options are a common form of compensation. It differentiates between the value of the option itself, which is a capital asset, and the income generated upon its exercise.
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