Restricted Stock Units (RSUs) have become a standard part of compensation at IT, product, and consulting companies in India — whether granted by an Indian employer directly or, more commonly, by the foreign parent of an Indian subsidiary. The mechanics of vesting are usually explained clearly by the employer's HR or equity-plan portal. What's explained far less often is the tax treatment — and RSUs are taxed differently, and twice, compared to a regular salary component. This guide sets out what's taxed, when, at what rate, and where every figure has to be reported in your return.
The ConceptWhat Exactly Is an RSU?
An RSU is your employer's promise to hand you company shares once you meet certain conditions — typically staying employed through a vesting schedule, often spread over three or four years. Unlike an Employee Stock Option (ESOP), there is no exercise price with an RSU: you don't pay anything to receive the shares. The entire value of the shares you receive is treated as compensation.
One key fact to hold onto: the grant itself is not a tax event. Nothing is taxed at the point your employer promises you the RSUs — tax only enters the picture once the shares actually vest and become yours.
Grant vs. Vest — Only One Matters to the Tax Department
It helps to separate these clearly, because the confusion between the two is where most reporting mistakes start.
At grant, your employer commits to give you N shares after a vesting schedule — you own nothing yet, so there is no tax. At vest, ownership actually transfers and the fair market value is locked in on that date — this is the first tax event.
The Core RuleRSUs Are Taxed Twice
This is the single most important thing to understand about RSU taxation in India: the same shares are taxed once as salary, and once again as capital gains. Most employees plan for one and are caught off guard by the other.
Vesting — Taxed as a Salary Perquisite
On the date the shares vest, the Fair Market Value (FMV) of those shares is added to your salary income for the year and taxed at your applicable income tax slab rate, under Section 17(2)(vi) of the Income Tax Act, 1961.
- What's taxed: FMV of the shares on the vesting date
- Rate: your applicable income tax slab rate, as part of salary income
- Who deducts it: your employer, via TDS under Section 192, shown on your payslip and Form 16
- Foreign shares: FMV is determined by a SEBI Category-I merchant banker's valuation, converted to Rupees using the SBI TT buying rate
Sale of Shares — Taxed as Capital Gains
When you eventually sell the vested shares, your gain is the sale price minus the FMV that was already taxed at vesting — that FMV becomes your cost of acquisition for capital gains purposes. This gain is taxed as short-term or long-term depending on how long you held the shares after vesting.
100 RSUs vest when the FMV is Rs. 2,000 per share. Rs. 2,00,000 is added to that year's salary income and taxed at slab rate — the employer deducts TDS accordingly. Eighteen months later, you sell all 100 shares at Rs. 2,600 per share.
Short-Term vs. Long-Term — The Holding Period That Applies
The holding period is measured from the vesting date, not the grant date. Where the shares are listed matters: the shorter 12-month test for equity shares only applies to shares listed on a recognised Indian stock exchange. RSUs of a foreign parent, listed only on NASDAQ, NYSE, or LSE, do not qualify for that rule — they follow the 24-month test that applies to unlisted shares and other capital assets.
| Holding Period (from vesting) | Classification | Tax Treatment |
|---|---|---|
| 24 months or less | Short-Term Capital Gain | Taxed at your applicable income tax slab rate |
| More than 24 months | Long-Term Capital Gain | 12.5% flat, without indexation (Section 112) |
This 24-month test applies to RSUs of companies listed only on foreign exchanges such as NASDAQ, NYSE, or LSE. It does not apply to the shorter 12-month rule reserved for equity shares listed on a recognised Indian stock exchange.
FilingWhere Does It All Get Reported?
Employees holding RSUs — particularly from a foreign employer — must file ITR-2, or ITR-3 if they also have business or professional income. Four separate parts of the return are involved.
1. Perquisite value
The FMV taxed at vesting is reflected under Income from Salaries, and should match the figure your employer has reported in Form 16.
2. Capital gains on sale
Reported in Schedule CG, split into short-term and long-term gains based on the holding period from the vesting date.
3. Foreign shareholding
Reported in Schedule FA — a mandatory foreign asset disclosure, separate from and in addition to the income reporting above.
4. Foreign tax already paid
If tax was withheld abroad on the same shares — for instance, US withholding on dividends — it's claimed as a Foreign Tax Credit using Form 67 together with Schedule FSI and Schedule TR.
The Schedule FA Trap
Of everything covered here, this is the requirement employees most often miss — and the one with the most disproportionate downside.
Disclosure, not tax. You must report your RSU shares in Schedule FA even if you haven't sold a single one and earned nothing from them during the year. Simply holding foreign shares as an Indian tax resident triggers the disclosure requirement, regardless of whether any income arose.
Calendar year, not financial year
For AY 2026-27, Schedule FA covers the period 1 January to 31 December 2025 — not the usual April-to-March financial year used everywhere else in the return. It's easy to disclose the wrong window by habit, and doing so leaves the correct period unreported.
Schedule FA isn't limited to undisclosed income. Missing it — even where the underlying salary income from vesting was fully disclosed and correctly taxed — invites scrutiny and penalty exposure under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The obligation exists independently of whether any tax was actually avoided.
What Your Employer Doesn't CoverTDS on Your Payslip Is Not Full Compliance
Seeing tax deducted at vesting can create a false sense that the compliance is complete. Your employer only handles the salary leg of the obligation — everything that happens after the shares vest is your personal responsibility.
Capital Gains Tax on Sale
Your employer has no visibility into when — or whether — you sell the shares, so this tax is entirely self-reported.
Advance Tax Instalments
If the capital gain is significant, advance tax instalments on that gain are due in the same year, separate from salary TDS.
Schedule FA Disclosure
Required every single year you continue to hold the shares — not just in the year you sell.
Foreign Tax Credit Claims
Any tax withheld abroad has to be separately claimed via Form 67, where applicable — it is not automatically adjusted.
Helping You File RSU Income Correctly
N D Savla & Associates prepares personal income tax returns for employees across Mumbai and India who hold equity compensation from Indian and foreign employers. Where RSUs are involved, our work covers reconciling the FMV taxed at vesting against Form 16, computing capital gains correctly using the vesting-date FMV as cost of acquisition, preparing the Schedule FA disclosure for the correct calendar-year window, and filing Form 67 to claim foreign tax credit where applicable. Our income tax return filing and NRI and cross-border taxation services include RSU and ESOP reporting as standard, so nothing is left for the following year's assessment to surface.
RSU Taxation — Common Questions
How are RSUs taxed in India?
RSUs are taxed twice. At vesting, the Fair Market Value of the shares on the vesting date is added to your salary income and taxed at your income tax slab rate under Section 17(2)(vi), with TDS deducted by your employer under Section 192. Later, when you sell the shares, the difference between the sale price and that same FMV is taxed as a capital gain — short-term or long-term depending on the holding period from the vesting date.
Is the RSU grant itself a taxable event?
No. The grant is simply your employer's commitment to give you a number of shares once vesting conditions, usually a period of continued employment, are met. You own nothing at grant, so there is no tax. Tax first applies on the vesting date, when ownership of the shares actually transfers to you.
Do I need to disclose RSU shares in Schedule FA even if I haven't sold them?
Yes. Schedule FA is a disclosure requirement, not a tax on income. If you hold shares of a foreign company as an Indian tax resident, you must report that holding in Schedule FA every year you continue to hold it, regardless of whether you sold any shares or earned any income during the year. Missing this disclosure, even where the related salary income was fully reported and taxed, can invite scrutiny under the Black Money Act.
What period does Schedule FA cover?
Schedule FA follows the calendar year, not the April-to-March financial year used elsewhere in the return. For AY 2026-27, Schedule FA covers 1 January 2025 to 31 December 2025. Employees often default to the financial-year window out of habit and end up disclosing the wrong period.
Do RSUs from a foreign employer qualify for the 12-month long-term capital gains rule?
No. The shorter 12-month holding period for long-term treatment applies only to equity shares listed on a recognised Indian stock exchange. RSU shares of a foreign parent listed only on exchanges such as NASDAQ, NYSE, or LSE follow the 24-month test instead. Shares held 24 months or less from vesting are short-term and taxed at slab rate; shares held longer are long-term and taxed at a flat 12.5% without indexation under Section 112.
Which ITR form should I use if I hold RSUs?
Employees holding RSUs generally file ITR-2, or ITR-3 if they also have business or professional income. The perquisite value from vesting is reported under Income from Salaries, capital gains on sale go in Schedule CG, the foreign shareholding is disclosed in Schedule FA, and any foreign tax already withheld is claimed as a credit via Form 67 together with Schedule FSI and Schedule TR.
If my employer already deducted TDS on my RSUs, is my compliance complete?
No. Employer TDS under Section 192 only covers the salary perquisite taxed at vesting. Capital gains tax on eventual sale, any advance tax instalments due on that gain, the annual Schedule FA disclosure, and foreign tax credit claims via Form 67 are all the employee's personal responsibility and are not handled through payroll.
RSUs are taxed twice — once as salary at vesting, once as capital gains at sale — and, for foreign shares, disclosed every year in between. Employer TDS only covers the first of these. The capital gains computation, the holding-period test, the annual Schedule FA disclosure on the correct calendar-year window, and any foreign tax credit claim through Form 67 remain the employee's own responsibility.
Reach N D Savla & Associates at +91 9819 000 511 or +91 91670 58000 for help computing your RSU tax liability or filing your return correctly — or visit ndsavlaa.com to explore the firm's services.
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