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 would rather settle this without going to court if the law allows it, but I need to know my rights before I sign anything. Please tell me what to do first and what document to keep.

MyVakeel Legal Desk · Accepted Answer

Under Indian law, Income-tax Act, 1961, Section 17(2) is the starting point for this tax law question. What follows is the position in substance, together with the steps that usually make the difference in practice.

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.

In practice, in this order: 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.

Timing matters here: Income-tax Act, 1961, Section 17(2) works on limitation periods, so a rsu taxation india claim that is right on the merits can still fail if it is brought late. 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 tax law.