How are Restricted Stock Units (RSUs) taxed on vesting and on sale in India

Question

My foreign employer granted me RSUs that recently vested, and I want to know when and how they get taxed in India. I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

How are Restricted Stock Units (RSUs) taxed on vesting and on sale in India is governed in India primarily by Income-tax Act, 1961, Section 17(2), Income-tax Act, 1961, Section 45 and Income-tax Act, 2025. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

RSUs are taxed at two distinct points: first as a perquisite under Section 17(2) on the date of vesting, when the fair market value of the shares allotted is added to salary income and taxed at slab rates, and the employer must withhold TDS on this value even if the shares are of a foreign listed company.

The fair market value on vesting date becomes the cost of acquisition for the shares, and any further gain or loss on eventual sale is taxed as capital gains under Section 45, classified as short-term or long-term depending on the holding period from the vesting date.

Foreign shares, such as those of a US-listed parent company, are treated as unlisted shares for Indian tax purposes for holding period computation, requiring more than 24 months of holding to qualify as long-term capital assets, unlike Indian listed shares which need only 12 months.

RSU holdings and any foreign bank or brokerage account through which they are held must be disclosed in Schedule FA of the income tax return under the reporting requirements linked to the Black Money Act, and non-disclosure can attract penalty even if no tax is actually due.

Any dividend received on vested RSU shares is taxable as income from other sources in the year of receipt, separate from the perquisite and capital gains taxation already described.

What to do next: 1) Obtain the vesting statement showing fair market value on each vesting date; 2) Confirm employer TDS on the perquisite value reflected in Form 16; 3) Compute capital gains on sale using vesting-date value as cost of acquisition; 4) Disclose the foreign shares and any dividend in Schedule FA and the relevant ITR schedules.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Income-tax Act, 1961, Section 17(2) carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.