India: One-time compensation received for diminution in value of stock options not taxable employment income (tribunal decision)
Tribunal found that compensation was not linked to taxpayer’s employment.
The Mumbai Bench of the Income-tax Appellate Tribunal held that one-time compensation received by an employee for diminution in the value of stock options was not taxable as a “perk” under section 17(2)(vi) of the Income-tax Act, 1961.
The tribunal observed that the taxpayer had neither exercised the stock options nor received any shares pursuant to such options and continued to hold all the options without surrendering or relinquishing any of them. The payment was made voluntarily by the company that granted the stock options to compensate the taxpayer for diminution in the value of stock options resulting from corporate restructuring and was not linked to the taxpayer's employment.
The tribunal also rejected the tax authority's alternative argument that the compensation was taxable as “profits in lieu of salary.” The tribunal held that since the compensation did not arise from employment, the compensation could not be treated as taxable salary merely by invoking a different statutory provision.
The case is: Ankit Jain v. DCIT (ITA 7979/Mum/2026)
Read a September 2026 report prepared by the KPMG member firm in India