New Delhi, Aug. 4 -- Startup employees who receive payouts when their vested but unexercised employee stock options (ESOPs) are bought back before they are exercised could have a stronger case for seeking capital gains tax treatment instead of paying tax under the salary head.

In a recent order, the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) remanded the case of a former Flipkart employee to the Commissioner of Income Tax (Appeals), directing it to examine the matter on merits in light of the Karnataka High Court's ruling in Manjeet Singh Chawla vs Deputy Commissioner of TDS.

The dispute relates to nearly Rs.39.74 lakh received by the employee from the buyback of vested stock options. While the taxpayer reported the amo...