ESOPs not much of celebration for employees of unlisted companies; here's why

E-commerce major Flipkart recently approved buyback of $100 million in employee stock options (ESOPs) — a bonanza for its 6,000-odd current and former employees. However, before uncorking the champagne bottle, the employees need to figure the tax implications. In unlisted companies, the tax treatment for employees will vary, depending on whether the buyback relates to stock options or to shares issued by the company.

If company buys back stock options:

Experts say that Section 46A of the Income Tax Act, 1961, specifically deals with tax implications in case of buyback by a company of its own shares or specified securities. “The term ‘specified securities’ has been assigned meaning as per Section 68 of the Companies Act, 2013, which includes employee stock options. Thus, a view can be taken that in case of buyback of employee stock options, the provisions of Section 46A of the Act shall be applicable,” says Homi Mistry, partner, personal taxes, ESOP, Deloitte Haskins & Sells. Accordingly, the difference between cost of acquisition and the value of consideration received by the employee shall be taxable as capital gains, he adds.