By CA Surekha
Restricted Stock Units (RSUs) are now a common component of global compensation packages, especially from US-based companies. For Indian tax residents, the treatment of RSUs involves two layers of taxation—first as salary at vesting, and later as capital gains upon sale. For non-residents, the framework differs. Below is the most comprehensive legal and procedural guide.
Legal Framework
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Section 17(2)(vi), Income-tax Act, 1961 → Perquisite taxation of RSUs at vesting.
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Rule 3(8), Income-tax Rules, 1962 → FMV determination for perquisites.
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Section 49(2AA) → Cost of acquisition for capital gains = FMV taxed as perquisite.
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Section 90 & Rule 128 → Foreign Tax Credit (FTC) under DTAA.
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Schedule FA (ITR) & Rule 21AB → Reporting of foreign assets.
Tax Events & Valuation at Each Stage
Stage 1: Vesting of RSUs
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Tax Head: Salary → Perquisite.
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Valuation Rule: FMV = Average of opening and closing price on vesting date (Rule 3(8)(ii)).
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Example:
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10 RSUs vested on 15 Nov 2024.
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Opening price = USD 100, Closing = USD 110 → FMV = USD 105.
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FMV (INR) = USD 105 × 10 × RBI TTBR on 15 Nov 2024.
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Suppose ₹8,75,000 → fully taxable as salary.
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TDS: Deducted u/s 192 by employer, often by selling some RSUs (say 3 out of 10).
Stage 2: Sale of Shares by Employer for TDS
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Tax Head: Capital gains, but…
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Valuation Rule: Cost of acquisition = FMV on vesting = Sale price (same day).
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Result: Nil capital gain (or negligible).
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No separate disclosure in ITR; only perquisite already taxed.
Stage 3: Retention & Reporting of Remaining Shares
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Schedule FA (only for Resident & Ordinarily Resident):
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Report 7 shares retained.
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“Initial Value” = FMV at vesting (not broker’s zero).
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“Peak value” = Highest market value during FY 2024–25.
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Non-residents: No FA reporting required.
Stage 4: Sale of Remaining RSUs by Employee
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Tax Head: Capital Gains.
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Valuation Rule:
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Cost of acquisition = FMV at vesting (as taxed earlier).
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Sale price = Actual sale consideration (converted at SBI TTBR on sale date).
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Holding period: From vesting date.
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24 months → LTCG @20% with indexation (Sec 112).
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≤24 months → STCG at slab rates.
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Example:
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7 shares sold on 20 Jan 2026 @ USD 130 each.
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Sale value (₹) = USD 130 × 7 × RBI rate (say ₹85) = ₹77,350.
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Cost (₹) = FMV at vesting (say ₹61,250).
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Capital Gain = ₹16,100.
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Stage 5: Dividends on Foreign RSUs
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Tax Head: “Income from Other Sources.”
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Rate: Taxable at slab rates in India.
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FTC: US dividend withholding (25%/15%) creditable in India via Form 67.
AIS/26AS Capture
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Salary Perquisite → Reflected in Form 16 + AIS Salary Tab.
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Employer’s sale for TDS → Not separately in AIS.
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Subsequent sale by employee → Reflected in AIS (Capital Gains tab) if routed via broker.
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Dividends → Reflected in AIS (Dividend tab, foreign remittances).
Treatment for Residents vs Non-Residents
| Particulars | Resident & Ordinarily Resident | Resident but Not Ordinarily Resident (RNOR) | Non-Resident |
|---|---|---|---|
| Salary perquisite (vesting) | Taxable in India (global income) | Taxable in India if services rendered in India | Taxable in India only if linked to India employment |
| Schedule FA disclosure | Mandatory | Not applicable | Not applicable |
| Capital gains on sale | Taxable in India (global income) | Taxable if shares received for India service | Not taxable unless sourced in India |
| Dividend income | Taxable in India (global income) | Taxable if linked to India employment asset | Not taxable unless sourced in India |
| FTC | Available | Available (if taxable) | NA if not taxed in India |
ITR Filing – Procedural Guidance
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Salary Schedule
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Auto-populated from Form 16 (perquisite value).
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Cross-check with AIS.
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Schedule FA (for Residents)
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Enter country code (US), name of company (e.g., Morgan Stanley platform).
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Number of shares held, initial value (FMV at vesting), peak value.
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Schedule CG
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Enter sale of shares (if any) → cost = FMV on vesting.
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Schedule OS
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Enter foreign dividends, claim FTC in Schedule TR with Form 67.
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Schedule TR + Form 67
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Claim FTC for US tax withheld (capital gains/dividends).
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Financial Statement & Audit Considerations
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For individuals (non-business): No balance sheet required, but Schedule FA is mandatory.
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For professionals with tax audit (Sec 44AB): RSU holdings may be disclosed as “Investments” in personal financial statements if attached.
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Valuation: Always take FMV per Rule 3, not broker-reported zero.
Common Pitfalls
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Reporting zero value in Schedule FA (incorrect).
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Missing Form 67 before filing ITR → FTC denied.
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Confusing vesting date FMV vs sale date price for cost basis.
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Non-reporting of dividends in Schedule OS.
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Assuming no capital gains on TDS sale without checking timing/price.
Key Takeaways
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RSUs are taxed twice in India → once as salary perquisite (on vesting) and again as capital gains (on sale).
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Schedule FA reporting is mandatory for residents, at FMV (not broker’s zero).
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No gain arises when employer sells shares for TDS.
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Subsequent sale: taxed as STCG/LTCG with FMV as cost.
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Dividends: taxable in India, FTC claimable.
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Non-residents taxed only if RSUs relate to Indian employment.
