With e-commerce giant Flipkart deciding to pay out $700 million (around Rs 5,600 crore) to almost 19,000 employees, real estate experts say that there is a possibility that a few of these employees may end up buying properties worth Rs 2,800 crore in Bengaluru alone in the next few months.
Flipkart started paying out this money earlier this week.
Considering that Flipkart employees will get a cash payout of $700 million, it can easily be estimated that 50 percent of this may go into buying properties. “This means that Flipkart employees may buy properties worth Rs 2,800 crore in Bengaluru in the next few months,” said Sandeep Reddy, co-founder, Zapkey.
Flipkart had said in December 2022 that it will make “a one-time discretionary payout” to employees, following the separation of PhonePe from the company. The compensation was equivalent to the value derived from PhonePe in Flipkart shares.
An email sent to Flipkart elicited this response: “Thanks for reaching out. However, we do not have anything to share on this matter.”
Moneycontrol had earlier reported that Flipkart will buy back employee stock options (ESOPs) worth about $700 million from employees as a part of its move to separate the financial services unicorn PhonePe, and as the e-commerce giant looks to hire and retain talent at a time when most startups in the country are undertaking layoffs due to the ongoing funding winter.
“The real estate market in Bengaluru is expected to get a major share of this investment, given that the Flipkart office is located in Bellandur. Major premium housing projects in and around Bellandur are expected to receive an impetus in demand and may push property prices northwards,” said Vikram Reddy of ORO PropTech, a real estate consultancy based in Bengaluru.
Bellandur area likely to gain the most
He said that he had been approached by senior-level employees of Flipkart for investment options in real estate. “There is demand for 4 BHKs and villas worth Rs 3.5 crore to Rs 5 crore in and around the Bellandur area. This is primarily a second home purchase for these buyers,” he said, adding the developers that have projects in the area include Adarsh, Mantri, Embassy and Prestige.
Usually these buyers want to buy homes because they wish to offset the capital gains tax by purchasing property. “A higher ticket size leads to more savings. It makes sense for them to buy a larger house rather than pay tax on the amount received from the company,” he added.
Here’s how the math works
Assuming a 30 percent tax cut, and an eligible employee base of 19,000, each eligible employee will receive around Rs 20 lakh in payout.
This is assuming everyone gets an equal share, which will not be the case, as ESOP vesting would be higher for senior folks. However, even if one were to assume that only 10-15 percent of Flipkart employees are eligible for ESOP cash out and around 2,000 to 2,500 employees buy homes worth Rs 1 crore, utilising around Rs 20 lakh worth of ESOP cash out as down payment and taking a home loan for the remaining amount, it may translate to property investment worth more than Rs 2,000 crore, explains Sandeep Reddy.
ESOPs are a popular instrument to retain employees and have historically been used by employees to invest in property. “They are a trigger for employees to buy a house and give a push to home-buying activity,” said Ritesh Mehta, Senior Director and Head, West and North, Residential Services & Developer Initiatives, JLL.
Real estate investments by Flipkart employees
Of late, a few Flipkart employees and executives have invested in real estate, which is testimony to the fact that wealth creation is finding its way into real estate.
Flipkart’s senior vice president Amitesh Kumar Jha had recently bought a villa in Bengaluru’s Adarsh Palm Retreat for about Rs 15.5 crore. A stamp duty of over Rs 79 lakh was paid on the deal, the sales deed accessed by Zapkey had showed.
In March this year, Adarsh Nahata, Finance Head at PhonePe, had bought a villa in Adarsh Palm Retreat Villa, having a built-up area of 4,038 sq ft for Rs 9.85 crore, according to property documents accessed by Zapkey.
Tax Benefits
Suresh Sadagopan, founder of Ladder7 Financial Advisories, clarified that in this case Flipkart is buying back the ESOPs already vested. These are unlisted Indian shares. The tax treatment is 20 percent with indexation after 24 months or at slab rates before that. If it is falling under the long-term capital gains and if these employees buy a home to the full extent of the sale amount of their Flipkart shares, they need not pay a tax. There is no upper limit on the long-term capital gains amount that can be invested as of now. But as per Budget 2023 there is a Rs 10 crore cap imposed from FY 2024–2025 onwards.
According to Vivek Jalan, Partner, Tax Connect Advisory, a multidisciplinary tax consultancy firm, under ESOP (Employee Stock Option Plan) rules, taxation occurs at two stages: first, when an employee exercises the ESOP options and gains ownership of the shares, and second, when the employee sells the shares. When the ESOP options are exercised, the shares become an asset for the employee.
Subsequently, when the employee sells the shares, the tax liability is determined based on the applicable capital gains rules (either short-term or long-term) depending on the duration of holding, he said.
Section 54F of the Income Tax Act allows for a tax exemption on long-term capital gains from the sale of shares if the entire sale proceeds (not just the capital gains) are utilised to purchase a residential property within the specified timeframe. However, in the Finance Act 2023, a deduction cap of Rs 10 crore has been introduced for capital gains on investments in residential properties under Sections 54 and 54F, he explained.
The copy has been updated with further comments from tax experts
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