Flipkart ESOP Compensation: ₹11 Crore Payout – Salary or Capital Receipt?

Flipkart

Flipkart ESOP Compensation: ₹11 Crore Payout – Salary or Capital Receipt?

Flipkart

In a landmark situation that could set a precedent for global tech employees, Flipkart employees received massive discretionary payouts after their ESOPs lost value due to a corporate restructure. But the key question remains—should such payouts be taxed as salary or treated as capital receipts?

Here’s a deep dive into the legal tangle and what it means for your ITR filing this season.

The Background: Flipkart, PhonePe & ESOPs

Employees of Flipkart were granted ESOPs by its parent company, Flipkart Pvt Ltd (FPS), based in Singapore.

Then came a major corporate development—PhonePe was demerged from Flipkart. This restructuring significantly eroded the valuation of the ESOPs that had been allotted to employees.

What followed was highly unusual: FPS voluntarily chose to compensate employees for the notional loss in ESOP value—even though there was no legal or contractual obligation to do so.

Flipkart

This wasn’t a token gesture. The payouts were substantial:

  • One employee received ₹76 lakh

  • Another received over ₹11 crore
    And this was for ESOPs that had not even been exercised.

The Central Tax Question

The real debate centers around this:
Is this payout taxable as salary (perquisite)? Or is it a non-taxable capital receipt?

Let’s examine both arguments.

Argument 1: It's Taxable Salary under Section 17(2)(vi)

Section 17(2)(vi) of the Income Tax Act, 1961 includes in salary the value of any specified security or sweat equity shares allotted or transferred, either directly or indirectly, to the employee by virtue of employment.

The Madras High Court held that this language is broad enough to include such discretionary payouts—even for unexercised ESOPs.
So, even though the ESOPs were not exercised, the court considered the payout a taxable perquisite, making TDS applicable.

Argument 2: It's a Non-Taxable Capital Receipt

However, both the Delhi High Court and Karnataka High Court disagreed. Their key observations:

  • The ESOPs were never exercised

  • No shares were transferred

  • The compensation was a voluntary, one-time goodwill gesture

  • There was no contractual right to this payout

As per these courts, the payout was not linked to any “perquisite” arising from employment but rather a capital receipt, not liable to income tax.

Hence, TDS should not have been deducted, and employees could be entitled to refunds.

Legal Conflict: Divergent High Court Views

This issue has now resulted in directly conflicting judgments:

  • Delhi HC (Sanjay Baweja case)

  • Karnataka HC (Manjeet Singh Chawla case)
        Versus

  • Madras HC (Nishithkumar Mehta case)

While the Delhi and Karnataka HCs protected employees from tax on unexercised ESOP payouts, Madras HC ruled such amounts are salary income and hence taxable.

This is not a case of differing interpretations—it’s a direct legal face-off.

What Should Flipkart Employees (and Others) Do Now?

If you’re one of the affected employees (or in a similar situation), here’s what you should consider:

  • If TDS was deducted, you may claim a refund while filing your ITR, based on Delhi and Karnataka HC rulings.

  • Maintain all documentation related to how the compensation was computed.

  • Stay tuned for further developments—Supreme Court intervention is likely, and its decision will provide final clarity.

Why This Case Has Wider Implications

This isn’t just about Flipkart.

Many global corporations grant ESOPs via offshore entities, and corporate restructuring events—like spin-offs, mergers, and demergers—can impact valuations. If companies begin issuing discretionary compensation for such value erosion, the tax treatment must be clearly defined.

With rising cross-border employment and stock-based compensation becoming the norm, this issue will only grow in relevance.

Read More: NRI Tax Filing in India: A Guide to Rent, Capital Gains & Interest Income

Key Takeaway

For now: Taxpayers who’ve received such ESOP-related payouts should evaluate legal precedents, maintain records, and consider seeking refunds if TDS has been deducted.

But keep in mind—this issue is headed for the Supreme Court. Until then, caution and awareness are key.

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Form 16: Key to Accurate ITR Filing

Form 16

Form 16: Key to Accurate ITR Filing

Form 16

As tax season rolls in, salaried individuals across India are bracing themselves for the annual ritual of Income Tax Return (ITR) filing. With numerous documents to gather and deadlines looming, one document emerges as a true ally—Form 16. Often overlooked or misunderstood, Form 16 is much more than just a routine TDS certificate—it’s your personal tax blueprint, designed to simplify your return filing and safeguard you from errors, mismatches, and tax notices.

What Exactly Is Form 16—and Why Does It Matter So Much?

Form 16 is issued annually by your employer, certifying that TDS (Tax Deducted at Source) has been deducted from your salary and deposited with the government. For the financial year 2024–25, most employees would have received it by mid-June 2025.

But beyond confirming TDS, Form 16 plays a bigger role—it summarizes your income, tax-saving claims, deductions, and total tax liability for the year. It’s an official validation of your salary and tax details, making it a must-have for filing an accurate ITR.

In specific cases, senior citizens aged 75 or above who receive pension and interest income from the same bank may receive a similar consolidated certificate from the bank or financial institution.

Form 16

The Structure of Form 16: What’s Inside

Form 16 is issued annually by your employer, certifying that TDS (Tax Deducted at Source) has been deducted from your salary and deposited with the government. For the financial year 2024–25, most employees would have received it by mid-June 2025.

But beyond confirming TDS, Form 16 plays a bigger role—it summarizes your income, tax-saving claims, deductions, and total tax liability for the year. It’s an official validation of your salary and tax details, making it a must-have for filing an accurate ITR.

In specific cases, senior citizens aged 75 or above who receive pension and interest income from the same bank may receive a similar consolidated certificate from the bank or financial institution.

The Structure of Form 16: What’s Inside

Form 16 has two main parts:

🔹 Part A – The Identification Section

This part includes:

  • Your name, PAN number

  • Employer’s TAN and name

  • Total salary paid

  • TDS deducted and deposited

It acts as a record of who you are, who your employer is, and whether your taxes have been paid.

🔹 Part B – The Tax Computation Summary

This section is crucial for ITR filing. It outlines:

  • Gross salary and income

  • Exemptions like HRA, LTA

  • Deductions under Sections 80C, 80D, etc.

  • Net taxable income and final tax liability

🔹 Form 12BA – The Perquisite Breakdown

If you received any perks, ESOPs, or non-cash benefits, these are disclosed in Form 12BA, which often accompanies Form 16. Omitting these details while filing returns can result in a mismatch with Form 26AS or the AIS (Annual Information Statement), possibly inviting scrutiny or notices from the tax department.

What Should You Double-Check in Form 16 Before Filing Your ITR?

Taking Form 16 at face value can be risky. Make sure to review it thoroughly:

✅ Personal & Employer Details: Confirm your PAN, name, and your employer’s TAN are correct—typos here can cause return processing failures.

✅ Salary Figures: Cross-check with your salary slips to ensure the breakup and total income match.

✅ Tax-Saving Claims: Ensure exemptions like HRA, LTA and deductions under Section 80C/80D are accurately reported.

✅ TDS Amounts: Match the TDS details in Form 16 with Form 26AS and AIS to spot discrepancies in advance.

Form 16

Why Form 16 Matters Even More in FY 2024–25

This year, the ITR filing deadline has been extended to September 15, 2025—giving taxpayers more time to file returns correctly. But more time also means more responsibility to ensure accuracy.

A single error in interpreting Form 16 could trigger:

  • A demand for additional tax

  • Delay in refunds

  • Income mismatch notices from the IT department

Hence, don’t treat Form 16 as just another PDF. Treat it like your tax toolkit.

Read More: NRI Tax Filing in India: A Guide to Rent, Capital Gains & Interest Income

Make Form 16 Work for You

Before hitting the “submit” button on your ITR, spend quality time understanding your Form 16. It isn’t just a compliance document—it’s your income tax superpower. Used properly, it ensures:

  • You declare your income accurately

  • You claim the deductions you’re entitled to

  • You avoid unnecessary taxes or scrutiny

Filing your ITR isn’t just a legal formality—it’s key to protecting your finances. Form 16 is your first line of defense—reach out to Certicom for expert guidance.

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Loan Interest Deductions: How to Claim and Avoid Tax Scrutiny

Loan Interest Deductions

Loan Interest Deductions: How to Claim and Avoid Tax Scrutiny

Loan Interest Deductions

Loan interest deductions are a powerful tool in reducing your taxable income and optimizing your financial planning. Whether you’re repaying a home loan or funding higher education, the Income Tax Act offers key deductions that can help you save significantly. However, with the evolving tax framework—especially after the Budget 2025 updates—it’s crucial to understand how these deductions work, which regime supports them, and how to avoid mistakes that could attract attention from tax authorities.

Understanding Loan Interest Deductions under the Income Tax Act

The Indian Income Tax Act allows deductions on the interest paid for certain types of loans, provided specific conditions are met. These deductions are aimed at easing the financial burden of taxpayers who take loans for purposes such as homeownership or higher education. The most widely used provisions include:

  • Section 24(b): Home loan interest deduction

  • Section 80E: Education loan interest deduction

Let’s dive deeper into each of these.

Loan Interest Deductions

Home Loan Interest Deduction – Section 24(b)

Section 24(b) allows individuals and Hindu Undivided Families (HUFs) to claim a deduction of up to ₹2 lakh per financial year on interest paid for a home loan. This applies to:

  • Loans taken for purchasing, constructing, or repairing a residential property

  • Properties that are self-occupied or let out (with different rules)

🔍 Budget 2025 Update: What’s New?

In Budget 2025, the government has proposed to enhance the deduction limit for home loan interest, particularly for those availing loans under affordable housing schemes. There’s also a push to simplify the compliance and documentation process, allowing easier claim filing for eligible taxpayers in Assessment Year 2025-26 and beyond.

Note: To claim this deduction, the individual must be the legal owner of the property and the loan must be in their name.

Education Loan Interest Deduction – Section 80E

Under Section 80E, taxpayers can claim 100% deduction on the interest paid towards education loans with no upper limit. However:

  • The loan must be taken from a financial institution or approved charitable trust

  • It should be used for higher education (in India or abroad)

  • Deduction is available for 8 years starting from the year of the first repayment

This benefit applies whether the loan is taken for the taxpayer, their spouse, children, or a student for whom the taxpayer is a legal guardian.

Other Loan Interest Deductions You Should Know

Apart from home and education loans, certain other loans may also qualify for interest deductions:

✔ Business Loans

Interest paid on business loans is deductible as a business expense under Section 37, reducing taxable profits.

✔ Personal Loans

While personal loans don’t usually offer tax deductions, if the funds are used for business or income-generating activities (e.g., buying rental property), the interest may be deductible.

✔ Investment Loans

Loans taken for investments (such as shares or bonds) generally do not qualify for deductions. However, if invested in rental property or business ventures, deductions may apply under relevant provisions.

Choosing the Right Tax Regime: Old vs. New

With the option of the new tax regime, taxpayers must decide between:

🟢 Old Tax Regime

  • Allows all deductions and exemptions, including Sections 24(b) and 80E

  • Better suited for those with high deductions (loan interest, insurance, etc.)

🔵 New Tax Regime

  • Offers lower tax rates but disallows most deductions

  • Doesn’t permit claims for home loan or education loan interest

✅ Which One to Choose?

Evaluate your total deductions. If your total deductions (including loan interest) significantly reduce your taxable income, sticking with the old regime may be more tax-efficient.

How to Claim Loan Interest Deductions Without Triggering Tax Scrutiny

The Income Tax Department closely monitors claims made under deduction sections. To stay compliant and avoid receiving scrutiny notices:

📌 1. Maintain Proper Documentation

  • For home loans: Keep the loan agreement, interest certificate, possession certificate, and bank statements

  • For education loans: Retain the sanction letter and interest payment proofs

📌 2. File Accurate and Complete Returns

  • Ensure all details (loan amounts, PAN of lender, property details, etc.) are correctly entered in the ITR

Loan Interest Deductions

📌 3. Claim Only Valid Deductions

  • Ensure that the loan type and purpose match the section’s eligibility

  • Don’t claim deductions for personal loans used for non-income-generating purposes

📌 4. File on Time

  • Delayed filing can lead to disallowance of deductions or mismatch issues with Form 26AS or AIS

Read More: NRI Tax Filing in India: A Guide to Rent, Capital Gains & Interest Income

Loan interest deductions can significantly reduce your tax burden, especially if you’re repaying a home or education loan. With the Budget 2025 changes, homebuyers—especially those in the affordable housing segment—stand to gain even more.

However, these benefits come with responsibilities. Taxpayers must choose the correct regime, claim only valid deductions, and maintain clear records to stay on the right side of the law. Done right, these deductions can be a cornerstone of efficient tax planning.

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