The two moments an RSU is taxed
The single most common source of confusion we hear is the fear of being taxed twice on the same shares. You are not. An RSU is taxed at two different moments, on two different amounts.
At vesting, as salary
On the day your restricted stock units vest, the market value of those shares is treated as a perquisite under Section 17(2) and added to your salary income. Your employer usually deducts tax on this, often by selling a portion of the shares to cover the liability, which is why the number of shares that reaches your broker account is smaller than the number that vested. This amount appears in your Form 16 and in Form 12BA.
At sale, as capital gains
When you eventually sell, you are taxed only on the gain above the value already taxed at vesting. That vesting value becomes your cost of acquisition, so it is never taxed again.
Shares of a company that is not listed on an Indian stock exchange are long term only after you have held them for more than 24 months. Below that, gains are short term and taxed at your slab rate. For transfers on or after 23 July 2024, long term gains on these shares are taxed at 12.5% without indexation.
How ESPPs are taxed
An employee stock purchase plan works differently, because you are paying for the shares out of your own salary, usually at a discount to the market price.
- On allotmentThe difference between the market value of the share on the allotment date and the price you actually paid is a salary perquisite, taxed at your slab rate.
- On saleYour capital gain is measured from that market value, not from the discounted price you paid. This is the step most people get wrong, and it usually means they overstate their gain and pay more tax than they owe.
The same 24 month holding period and 12.5% long term rate apply to ESPP shares in a foreign company.
ESOPs, GSUs and other names for the same idea
Employers use different labels. Alphabet calls them GSUs, most other companies call them RSUs, and startups often issue ESOPs that you have to exercise. The tax logic is broadly the same shape: something is taxed as salary when the shares become yours, and the rest is capital gains when you sell. The details differ, and for ESOPs in eligible start-ups there are deferral provisions under Section 192(1C) worth checking. If you are unsure which category yours falls into, bring us the grant documents and we will work it out with you.
What changes because the shares sit abroad
Holding foreign shares triggers three obligations that a domestic-only filer never encounters.
Schedule FA disclosure
If you are a resident and ordinarily resident, you must disclose foreign equity in Schedule FA of your return, reported for the calendar year rather than the financial year. You report the initial investment value, the peak value during the year, the closing value, and any gross proceeds from sale. This is required even if you never sold a single share, and even if your total income is below the taxable limit. We have written a fuller explanation on our Schedule FA and foreign asset reporting page.
Foreign dividends
Dividends from foreign shares are taxable in India as income from other sources at your slab rate. In the United States, tax is typically withheld at source at 25% under the treaty. That withheld tax is not lost, but you have to claim it correctly.
Foreign tax credit and Form 67
To claim credit for tax already paid abroad, the foreign income goes into Schedule FSI, the relief is claimed in Schedule TR, and Form 67 has to be filed to support it. Missing Form 67 is one of the most expensive oversights we see, because it can turn recoverable tax into a real cost.
Documents we will ask you for
- Form 16 and Form 12BA from your employer, which show the perquisite value already taxed
- Your full-year broker statement, for example from Morgan Stanley StockPlan Connect, Charles Schwab, E*TRADE or Fidelity
- Vesting and release confirmations showing the number of shares and the value on each vest date
- Trade confirmations for any sales during the year
- Dividend statements and the tax withheld, usually Form 1042-S for United States shares
- Your bank statements for any foreign remittances
If you work at a company we file for often, we have step by step checklists showing exactly where each document lives in your broker portal, including for Alphabet GSUs and Amazon RSUs.
Mistakes we correct most often
If you recognise yourself in any of these, it is fixable, and you are in good company.
- Using the discounted ESPP purchase price as the cost base instead of the market value on allotment, which overstates the gain
- Converting foreign currency at the wrong rate or on the wrong date, rather than the prescribed SBI telegraphic transfer buying rate
- Reporting Schedule FA for the financial year instead of the calendar year
- Treating a dividend reinvestment line on a broker statement as fresh income when it is not
- Skipping Form 67 and losing an otherwise valid foreign tax credit
- Filing ITR-1 when foreign assets require ITR-2, which makes the return defective
How we work with you
You upload what you have, and a chartered accountant who has handled these returns before goes through it. We rebuild the perquisite working from your payslips and Form 12BA, compute lot by lot capital gains from your broker statement, prepare the Schedule FA tables, and prepare Form 67 where a foreign tax credit applies. You see a full draft with the numbers explained before anything is filed, and you take as long as you need with it.
If you would rather talk through a decision before the filing season, such as whether to sell now or hold past the 24 month mark, a one to one tax planning session may suit you better.
Questions filers ask us
The things people most often want settled before they start.
Are RSUs taxed twice in India?
Not on the same amount. RSUs are taxed at two separate moments on two different amounts. At vesting, the market value of the shares is treated as a salary perquisite. At sale, only the gain above that vesting value is taxed as capital gains. The vesting value is your cost base, so it is never taxed a second time.
Do I need to file ITR-2 if I hold RSUs in a foreign company?
Yes, in most cases. A resident and ordinarily resident who holds foreign shares must disclose them in Schedule FA, and Schedule FA is only available in ITR-2 and ITR-3. This applies even if you sold nothing during the year and even if your total income is below the basic exemption limit.
How is the ESPP discount taxed in India?
The difference between the market value of the share on the date it is allotted to you and the price you actually paid is treated as a salary perquisite and taxed at your slab rate. When you later sell, capital gains are computed from that market value, not from your discounted purchase price.
Can I claim credit for US tax withheld on my RSUs and dividends?
Yes, through the foreign tax credit under the India and United States tax treaty. You report the foreign income in Schedule FSI, claim relief in Schedule TR, and file Form 67 to support the claim. Form 67 needs to be filed for the credit to be allowed.
What happens if I did not report my foreign shares in earlier years?
You are not alone in this, and it is usually fixable. Depending on the year and your circumstances, an updated return under Section 139(8A) or a revised return may be available. Talk to us about your specific years and we will tell you honestly what your options are.