Quick answer: RSUs (Restricted Stock Units) trigger Indian tax twice: at vesting and again at sale. At vesting, the Fair Market Value (FMV) of the shares is added to your salary as a perquisite under Section 17(2) and taxed at your slab rate — typically 30-31% for higher earners. The employer usually deducts TDS by selling about a third of the shares ("sell-to-cover"). At sale, the gain over FMV-at-vesting is treated as capital gains. For Indian-listed RSUs (TCS, Infosys, Wipro), the holding period is 12 months — short-term gains are taxed at 20% under Section 111A, long-term gains at 12.5% above the ₹1.25 lakh annual exemption under Section 112A. For US-listed RSUs (Google, Microsoft, Amazon, Meta, Apple), the holding period is 24 months — short-term gains are taxed at slab rate, long-term gains at a flat 12.5% under Section 112 with no ₹1.25 lakh exemption. The major trap for US RSU holders: foreign RSUs must be disclosed in Schedule FA of ITR-2 every year you hold them, even if you haven''t sold — non-disclosure carries a ₹10 lakh penalty per assessment year under the Black Money Act, regardless of asset value or income earned.
Key takeaways
- RSUs are taxed twice: as salary perquisite at vesting (slab rate) and as capital gains at sale (12.5% LTCG or higher STCG depending on holding period).
- Your cost basis for the sale event is the FMV on the vesting date — not the grant price — because you already paid tax on the FMV through the perquisite.
- US-listed RSUs require a 24-month holding period for LTCG treatment and don''t get the ₹1.25 lakh annual exemption — that exemption applies only to Indian-listed equity under Section 112A.
- Foreign RSUs trigger mandatory Schedule FA disclosure in ITR-2 from the first vesting year, regardless of whether you''ve sold — non-disclosure attracts a ₹10 lakh penalty per assessment year under the Black Money Act.
- Schedule FA follows the calendar year (Jan-Dec), not the financial year — a critical timing distinction that catches many filers off-guard.
If you work at Google India, Microsoft, Amazon, Adobe, NVIDIA, Uber, Meta, or any of the Indian arms of US tech giants — or at Indian listed companies like TCS, Infosys, or Wipro with employee stock programs — RSUs probably make up a substantial portion of your annual compensation. They''re also one of the most complex areas of Indian personal tax, with two distinct tax events at different rates, different rules for Indian and foreign companies, and a mandatory foreign asset disclosure regime carrying penalties that can dwarf the underlying tax liability.
This article walks through both tax events with verified computations, explains the structural difference between Indian-listed and foreign-listed RSUs, covers the Schedule FA disclosure trap that has caught thousands of unsuspecting tech employees, and outlines the timing strategy that can save substantial tax on the same RSU grants. Use Ganak''s Capital Gains Calculator to model the sale event for your specific situation.
The Two Tax Events: An Overview
The fundamental concept to internalise: an RSU grant doesn''t trigger tax. Vesting does. And then selling triggers tax again on the gain since vesting. These are independent events, taxed under different sections, at different rates.
An RSU is a promise from the employer that on certain dates (vesting dates), the employee will receive shares of the company. The grant date itself isn''t taxable — at that point, you don''t own anything, just a promise. The vesting date is when ownership transfers, and Indian tax law treats this as receiving compensation equal to the value of the shares on that date. The subsequent sale of the now-owned shares is treated as any other equity transaction, with capital gains tax depending on holding period and the type of equity (Indian or foreign).
This structure explains why two separate computations are needed, why your bank statement shows large TDS deductions on RSU vesting dates, and why employees often find themselves owing substantial additional tax in the year of a major sale even though the employer has been deducting TDS along the way.
Event 1: Vesting — Salary Perquisite at Slab Rate
On the vesting date, the FMV (Fair Market Value) of the shares being delivered is added to your salary as a "perquisite" under Section 17(2) of the Income Tax Act. For listed shares, FMV is the average of the highest and lowest price on the vesting date on the recognised exchange. For US shares, it''s the closing price on the US exchange on the vesting date, converted to INR using the SBI TT buying rate on that date.
This perquisite value is taxed at your applicable slab rate — typically 30% for higher earners, plus 4% cess. The employer must deduct TDS on this perquisite, which is where the "sell-to-cover" mechanism comes in.
Sell-to-cover (or net settlement): Because the perquisite is non-cash (you''re receiving shares, not money), the employer can''t deduct TDS from cash you''d otherwise receive. The standard mechanism is for the broker (typically Morgan Stanley, Fidelity, E*Trade, or Charles Schwab for US RSUs; Indian DPs for Indian RSUs) to automatically sell roughly 30-35% of the vesting shares on the same day to generate the cash needed to cover the TDS. The shares sold to cover are treated as part of the perquisite — their value is included in the perquisite value, but no separate capital gain arises because they''re sold the same day at essentially the same price as vesting.
The employee receives the remaining shares after the sell-to-cover. These are the shares whose subsequent sale generates Event 2.
Event 2: Sale — Capital Gains
When the employee eventually sells the retained shares, the difference between the sale price and the cost basis is a capital gain (or loss). The crucial point: cost basis is the FMV on the vesting date, not the grant price, not zero — because the employee has already paid tax on the FMV through the perquisite at vesting. Treating the cost basis as zero would result in double taxation on the value already included in salary income.
The tax rate depends on holding period (measured from vesting date, not grant date) and the type of equity:
| Equity type | Holding for LTCG | STCG rate | LTCG rate | Annual exemption |
|---|---|---|---|---|
| Indian-listed (Section 112A) | 12 months | 20% (Section 111A) | 12.5% | ₹1.25 lakh per year |
| Foreign-listed (Section 112) | 24 months | Slab rate | 12.5% flat | None |
For Indian-listed RSUs, a 12-month holding period qualifies for LTCG treatment at 12.5%, and the first ₹1.25 lakh of LTCG (aggregated across all listed equity in the year) is exempt. The exemption applies to the total LTCG from all Indian-listed equity, not separately to each transaction.
For US-listed RSUs (and any other foreign-listed equity), the holding period requirement doubles to 24 months for LTCG treatment. Short-term sales — within 24 months of vesting — are taxed at slab rate, which for higher earners means 30-31%. Long-term sales are taxed at a flat 12.5% under Section 112, without any annual exemption. The 12.5% rate on foreign LTCG was harmonised with Indian equity LTCG by Budget 2024, which raised Indian LTCG from 10% to 12.5% — they now sit at the same nominal rate, but only Indian-listed equity gets the ₹1.25 lakh exemption.
Three Computed Scenarios
The math becomes clearer with three specific worked examples.
Scenario 1: US-listed RSU sold after 25 months (LTCG)
An employee at Microsoft India receives 100 vested shares at $200 FMV (₹16,800 per share at ₹84/USD on vesting date). She holds them for 25 months and sells at $280 (₹24,080 per share at ₹86/USD).
| Item | Amount |
|---|---|
| Perquisite value at vesting (100 × $200 × 84) | ₹16,80,000 |
| Tax on perquisite at 30% slab + 4% cess | ₹5,24,160 |
| Sale value (100 × $280 × 86) | ₹24,08,000 |
| Cost basis (FMV at vesting) | ₹16,80,000 |
| Long-term capital gain | ₹7,28,000 |
| LTCG tax at 12.5% under Section 112 (no exemption) | ₹91,000 |
| Plus 4% cess | ₹94,640 |
| Total tax across both events | ₹6,18,800 |
| Effective tax rate on the entire RSU value | 25.7% |
Scenario 2: Same US RSU but sold at 20 months (STCG)
Same numbers as above, but the employee sells at the 20-month mark instead of 25 months — short of the 24-month LTCG threshold for foreign equity:
| Item | Amount |
|---|---|
| Perquisite tax at vesting (same as above) | ₹5,24,160 |
| Short-term capital gain | ₹7,28,000 |
| STCG tax at 30% slab + 4% cess (no Section 111A here) | ₹2,27,136 |
| Total tax across both events | ₹7,51,296 |
| Extra tax versus the 25-month sale | ₹1,32,496 |
Waiting four more months saves ₹1.32 lakh of tax on this specific grant. For larger grants or higher-value vests, the gap can run to several lakhs. This is the single most actionable RSU tax-planning insight — the 24-month holding period is genuinely material.
Scenario 3: Indian-listed RSU (TCS, Infosys, Wipro)
An employee at TCS receives 200 vested shares at ₹1,500 FMV. She holds them for 18 months and sells at ₹2,100 per share.
| Item | Amount |
|---|---|
| Perquisite value at vesting (200 × ₹1,500) | ₹3,00,000 |
| Tax on perquisite at 30% slab + 4% cess | ₹93,600 |
| Sale value (200 × ₹2,100) | ₹4,20,000 |
| Cost basis (FMV at vesting) | ₹3,00,000 |
| Long-term capital gain | ₹1,20,000 |
| Less: ₹1.25 lakh annual exemption (Section 112A) | ₹1,20,000 |
| Taxable LTCG | ₹0 |
| LTCG tax | ₹0 |
| Total tax (only the vesting perquisite) | ₹93,600 |
The ₹1.25 lakh annual exemption fully absorbs the LTCG on Indian-listed shares in this scenario, leaving zero capital gains tax. The same gain on US-listed shares would have triggered ₹15,000 of LTCG tax. The exemption is one of the most under-appreciated features of Indian-listed RSU compensation — annual gain capture up to the threshold is genuinely tax-free.
Indian-Listed vs Foreign-Listed: The Structural Differences
The differences between Indian and foreign RSUs go beyond just tax rates — they affect holding periods, exemption availability, disclosure obligations, and currency considerations:
| Aspect | Indian-listed RSU | Foreign-listed RSU |
|---|---|---|
| Examples | TCS, Infosys, Wipro, Tata Group | Google, Microsoft, Amazon, Meta, Apple |
| Vesting tax | Perquisite at slab rate | Perquisite at slab rate (same) |
| Sale governed by | Section 111A/112A | Section 112 |
| Holding for LTCG | 12 months | 24 months |
| LTCG rate | 12.5% | 12.5% |
| STCG rate | 20% | Slab rate |
| ₹1.25L annual exemption | Yes | No |
| Schedule FA disclosure | Not required | Mandatory from first vesting |
| Currency risk | None (INR throughout) | USD/INR exposure between vesting and sale |
| Dividend tax | Slab rate on receipt | Slab rate on receipt; US 25% withholding via DTAA |
For an Indian-listed RSU grant, life is comparatively simple: file ITR-1 or ITR-2 with salary and capital gains, claim the ₹1.25 lakh annual LTCG exemption, done. For a foreign-listed RSU grant, the complexity escalates significantly: ITR-2 mandatory (ITR-1 doesn''t allow Schedule FA), foreign asset disclosure every year you hold even one share, currency conversion using SBI TT rates at each event, and potential foreign tax credit claims under the India-US DTAA.
The Schedule FA Trap (Foreign RSUs Only)
This is the part that catches the most people, and where the financial exposure can dwarf the actual RSU tax. Every Resident and Ordinarily Resident taxpayer who holds foreign assets — including vested RSUs that haven''t been sold yet — must disclose them in Schedule FA of ITR-2. Failure to disclose attracts a flat ₹10 lakh penalty per assessment year under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) Act, 2015. This penalty applies even if no tax was evaded, no income was earned from the assets, and the asset value is trivial — a single fractional share worth ₹500 triggers the same disclosure requirement as a ₹50 lakh portfolio.
Three structural points about Schedule FA that surprise filers:
The calendar year reporting basis. Schedule FA follows the calendar year (January to December), not the Indian financial year (April to March). For an ITR filed in 2026 (AY 2026-27, covering FY 2025-26), you must report foreign assets held at any time between 1 January 2025 and 31 December 2025. This catches many filers who assume the FY 2025-26 reporting basis applies. The capital gains computation and dividend income still use the financial year — but the asset disclosure uses the calendar year.
No minimum value threshold. A single fractional share. A dormant brokerage account. A vested RSU you haven''t sold. All require disclosure. The Income Tax Department''s position is that the discipline of disclosure matters more than the monetary materiality of any specific asset.
Disclosure required even for sold shares held during the year. If you held the foreign asset at any point during the calendar year — including immediately before selling it — disclosure is required. Selling everything by 31 December doesn''t exempt you from disclosing for that year.
Schedule FA''s structure includes specific tables: Table A1 for foreign bank accounts, Table A3 for foreign equity and RSUs (typically used), Table B for financial interest in foreign entities, and so on. The required fields include the country, name of the entity, account number or other identifier, opening and closing balance, peak balance during the year, and income earned. For RSUs, the peak balance is the highest market value of the holdings at any point during the calendar year.
The 2026 Small Taxpayer Disclosure Scheme
One of the more significant developments in this area: Budget 2026 introduced a one-time Foreign Assets of Small Taxpayers — Disclosure Scheme, 2026 — a six-month amnesty window allowing defaulting taxpayers to disclose previously-undeclared foreign assets with additional taxes and fees, in exchange for protection from the ₹10 lakh per year penalty. This is targeted at smaller defaulters whose non-disclosure was inadvertent rather than intentional tax evasion.
Additionally, a 2024 amendment provides retrospective immunity from prosecution (not penalty) for non-disclosure of non-immovable foreign assets totalling below ₹20 lakh, subject to specific conditions. This addresses the absurdity of small taxpayers facing potential 3-10 year prison terms over disclosure failures on assets worth a fraction of the penalty itself.
If you''ve held foreign RSUs in previous years and failed to disclose them in Schedule FA, consult a tax professional about whether the amnesty scheme applies to your situation. The window is genuinely time-limited and the cost of using it is typically a fraction of the penalty exposure.
Tax Planning: Timing the Sale
Several actionable RSU tax-planning levers exist:
Hold foreign RSUs past 24 months when possible. The difference between 23 months and 25 months of holding can mean tax at 30% slab versus 12.5% — for a substantial RSU grant, this can be ₹1-3 lakh of additional tax saved per ₹10 lakh of capital gain. If the stock has appreciated meaningfully and you''re close to the 24-month mark, waiting is usually the right call.
Spread sales across financial years to use the ₹1.25 lakh exemption (Indian-listed only). The ₹1.25 lakh annual LTCG exemption resets each financial year. Selling ₹2.5 lakh of Indian-listed RSU LTCG across two financial years (₹1.25 lakh each) versus one (full ₹2.5 lakh in one year) saves ₹15,625 of tax — modest but meaningful for larger grants.
For foreign RSUs, sell winners in years with capital losses on other investments. Capital losses can offset capital gains. If you have unrealised losses on other equity positions, harvesting them in the same financial year as a foreign RSU sale reduces the net taxable capital gain.
Consider currency timing. For US RSUs, the rupee value of your gain depends on USD/INR at sale. If the rupee has strengthened, the INR gain shrinks; if it''s weakened, the INR gain inflates. While currency timing isn''t reliably predictable, awareness of the FX exposure helps inform sale timing for large positions.
Don''t sell-to-cover at vesting beyond what''s needed for tax. Some employees instruct their broker to liquidate the entire vested grant immediately. This is rarely tax-optimal — the same-day sale produces no capital gain or loss but locks in the price at vesting. Holding the residual shares for at least 24 months (for US RSUs) gives the chance to qualify for LTCG treatment on subsequent appreciation.
DTAA Relief and Form 67
For Indian residents holding US-listed RSUs, the India-US Double Tax Avoidance Agreement (DTAA) prevents the same income from being taxed in both countries. The general structure: the US doesn''t withhold tax on capital gains by Indian residents on US-listed shares (the gain is taxed only in India). The US does withhold tax on dividend income from US shares at the DTAA rate of 25%, which the Indian taxpayer can claim as foreign tax credit against the Indian tax on the same dividend.
The mechanism: file Form 67 before filing ITR, declaring the foreign income and the foreign tax paid. The Indian tax computation includes the foreign income at slab rates (for dividends) or LTCG rate (for capital gains), and the foreign tax already paid is credited against this. Net Indian tax payable is the Indian tax minus the foreign tax credit.
For dividend income from US RSUs, the typical flow: US withholds 25% on the gross dividend (paid via the broker), the net dividend reaches your account, and you declare the gross dividend in your Indian ITR with the US withholding as foreign tax credit. At the 30% slab in India, you''d owe an additional 5% (after the 25% credit). At lower slabs, the US withholding may exceed Indian tax — the excess is not refundable but doesn''t need to be paid in India.
Common Mistakes
Treating cost basis as zero or grant price. The cost basis is the FMV on the vesting date — the amount you''ve already paid tax on through the perquisite. Treating it as zero results in double taxation on the same value; using grant price (typically lower than FMV) results in over-stating the gain.
Forgetting Schedule FA for foreign RSUs. The single most expensive mistake in the entire area. ₹10 lakh penalty per assessment year, regardless of asset value. Even if you sold all RSUs by year-end, disclosure is required for the year you held them.
Filing ITR-1 with foreign RSUs. ITR-1 (Sahaj) doesn''t contain Schedule FA. Holding any foreign asset, including vested RSUs, mandates ITR-2 or ITR-3.
Confusing the calendar year (Schedule FA) with the financial year (rest of ITR). Schedule FA reports assets held between January 1 and December 31, while income and capital gains are reported for the April-March financial year. Mixing these up produces errors that can trigger scrutiny.
Selling foreign RSUs at 22-23 months instead of waiting for LTCG. The 24-month foreign equity holding requirement is firm. Selling at 23 months instead of 25 months can mean an extra ₹1-3 lakh of tax for a typical RSU grant — substantial savings from a modest delay.
Claiming ₹1.25 lakh exemption on foreign RSU LTCG. The exemption applies only under Section 112A (Indian-listed equity), not under Section 112 (foreign equity). Some taxpayers and even some tax preparers wrongly apply it; the assessment will catch this.
Frequently Asked Questions
When are RSUs taxed in India?
RSUs are taxed twice — first at vesting and again at sale. At vesting, the Fair Market Value of the shares being delivered is added to your salary as a perquisite under Section 17(2) and taxed at your slab rate (typically 30-31% for higher earners). At sale, the gain over FMV-at-vesting is treated as capital gains — short-term (slab rate or 20%) if held under the threshold, long-term (12.5%) if held longer. The threshold is 12 months for Indian-listed shares and 24 months for foreign-listed shares. Your cost basis at sale is the FMV at vesting, not the grant price.
What is the difference between RSU tax for Indian-listed and US-listed shares?
Indian-listed RSUs (TCS, Infosys, Wipro) qualify for LTCG treatment after 12 months of holding, are taxed at 12.5% above the ₹1.25 lakh annual exemption under Section 112A, and short-term gains are at 20% under Section 111A. US-listed RSUs (Google, Microsoft, Amazon, Meta, Apple) require a 24-month holding period for LTCG treatment at a flat 12.5% under Section 112 with no annual exemption, and short-term gains are taxed at your slab rate. Additionally, foreign RSUs trigger mandatory Schedule FA disclosure every year you hold them, with a ₹10 lakh penalty per year for non-disclosure under the Black Money Act.
Do I need to disclose RSUs in Schedule FA?
Yes, if the RSUs are from a foreign company — every Resident and Ordinarily Resident taxpayer must disclose foreign assets in Schedule FA of ITR-2 from the first vesting year, regardless of whether they''ve sold any shares or earned any income. There is no minimum value threshold — even one fractional share or a vested RSU worth ₹500 requires disclosure. Schedule FA follows the calendar year (January to December), not the financial year, so you must report assets held at any point during that calendar year. Non-disclosure attracts a flat ₹10 lakh penalty per assessment year under Section 43 of the Black Money Act. Indian-listed RSUs (TCS, Infosys, Wipro) don''t require Schedule FA disclosure since they''re Indian assets.
What is sell-to-cover for RSUs?
Sell-to-cover is the standard mechanism employers use to collect TDS on the vesting perquisite. Because the perquisite is non-cash (you''re receiving shares, not money), the broker — typically Morgan Stanley, Fidelity, E*Trade, or Charles Schwab for US RSUs — automatically sells about 30-35% of the vesting shares on the same day to generate cash for the TDS. You receive only the remaining shares. The shares sold to cover are part of the same vesting perquisite — their value is included in the perquisite reported in your Form 16, but no separate capital gains arises because the sale happens at essentially the same price as vesting.
What is the cost basis for selling RSU shares?
The cost basis is the Fair Market Value of the shares on the vesting date — not the grant price, not zero. This is because the vesting FMV has already been taxed as a salary perquisite at slab rate. When you eventually sell, the capital gain is computed as sale price minus the FMV-at-vesting, ensuring no double taxation on the same value. For US-listed shares, the cost basis in INR uses the SBI TT buying rate on the vesting date. Bank or broker statements typically show this correctly, but verify the FMV used matches your Form 16 perquisite value to ensure consistency.
When should I sell my RSUs for tax efficiency?
The single most actionable RSU planning lever is timing the sale to qualify for LTCG. For US-listed RSUs, holding past 24 months from vesting means a flat 12.5% LTCG rate instead of slab rate (which can be 30%+ for higher earners) — for a typical mid-sized RSU grant, this can save ₹1-3 lakh of tax versus selling at 22-23 months. For Indian-listed RSUs, the threshold is 12 months. Within that, spreading sales across financial years lets you use the ₹1.25 lakh annual LTCG exemption repeatedly (Indian-listed only). Beyond holding-period optimisation, sell winners in years where you have offsetting capital losses elsewhere to reduce net taxable gains.
How is dividend on US RSUs taxed in India?
Dividend income from US RSUs is taxable in India at slab rate, regardless of whether you''ve received the dividend in your Indian bank account or it sits in your US brokerage. Under the India-US DTAA, the US withholds tax on dividends at a 25% rate at source — this is automatically deducted by the broker before crediting the net dividend to your account. The Indian taxpayer reports the gross dividend (pre-withholding) in their ITR at slab rate, and claims the 25% US withholding as foreign tax credit via Form 67 (filed before the ITR). At the 30% Indian slab, an additional 5% Indian tax is payable; at lower slabs, the US withholding may exceed the Indian liability, but the excess isn''t refundable.
Sources and Further Reading
This article references Sections 17(2), 111A, 112, 112A of the Income Tax Act, 1961, the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, India-US DTAA provisions, and Budget 2026''s Foreign Assets of Small Taxpayers Disclosure Scheme. The scenario calculations use long-term capital gains rates as of FY 2026-27 (12.5%) and the standard 30% slab plus 4% cess. For official references:
- Income Tax Department — RSU/ESOP perquisite valuation rules and Schedule FA guidance
- Income Tax India — Sections 111A, 112, 112A capital gains provisions
- Income Tax India — Foreign Tax Credit and Form 67 procedure
- India Budget — current year Finance Act provisions on capital gains and foreign asset disclosure
Last verified: 31 May 2026. Tax rates and Schedule FA penalty provisions reflect FY 2026-27 norms. RSU tax treatment is complex and fact-specific — for substantial RSU positions, consider professional tax advice, particularly for the first year after RSUs begin vesting or in any year involving cross-border tax events (relocation, NRI status change, large sale).