Policy · Commerce & Consumer Brands

Tax tribunal rules Flipkart ESOP buyback gains are capital income

By Startup Enthusiast · 6 August 2026

What they do

Flipkart is a major Indian e-commerce company that sells goods and services online

The ITAT ruled that money from buying back unexercised stock options is taxed as long-term capital gains

This decision creates tax distortion compared to exercising options which are taxed as salary income

The ITAT Bengaluru bench ruled that repurchase gains on unexercised vested ESOPs are taxable as long-term capital gains.
The case involved a Flipkart senior executive who received ₹2.33 Cr from the company for 2,653 repurchased options.
The assessing officer had sought to reclassify these proceeds as salary perquisite under Section 17(2) of the Income Tax Act.
The executive appealed unsuccessfully to the Commissioner of Income Tax (Appeals) before approaching the ITAT.
The tribunal held that stock options are rights to subscribe to shares and not 'specified securities' until exercised.
No value could be assigned to the unexercised option, so salary perquisite taxability did not arise at that stage.
The repurchase was treated as a transfer of a capital asset with gains taxable under Section 45.
The executive reported an LTCG of ₹2.45 Cr against a gross salary of ₹1.90 Cr.

High Courts in Delhi, Karnataka, and Madras have delivered conflicting rulings on this specific tax issue.
Experts note the ruling applies to a narrow range where vested unexercised ESOPs are cancelled for payment.
Startup acquisitions often involve acquirers cancelling or not continuing existing employee stock option plans.

Flipkart operates as a leading e-commerce platform in India for consumer goods and services.
The company employs thousands of staff including senior executives who receive equity compensation packages.
ESOP buybacks provide liquidity to employees without requiring them to exercise their stock options first.
The company faces complex tax compliance requirements regarding employee equity transactions and valuations.
Recent data shows over 9,200 startup employees accessed liquidity via ESOP buybacks totaling ₹1,409 Cr in 2025.