Restricted Stock Units have become a standard part of compensation at IT, product, and consulting companies across India — whether granted by an Indian employer directly or, more commonly, by the foreign parent of an Indian subsidiary. What trips up most employees is not the vesting schedule, which HR explains clearly, but the tax treatment — RSUs are taxed differently, and twice, compared to a regular salary component, and a third obligation follows every year a foreign holding continues.
Each filing season, Casela Advisors reconciles RSU income for employees across Mumbai and India who assumed that the TDS already deducted on their payslip was the end of the story. It isn’t. This guide sets out exactly what’s taxed, when, at what rate, and where every figure belongs in your AY 2026-27 income tax return.
| Event | What’s Taxed | Reported In |
|---|---|---|
| Grant | Nothing — not a tax event | Not applicable |
| Vesting | FMV of shares, as salary perquisite | Income from Salaries, matches Form 16 / Form 130 |
| Sale | Sale price minus FMV, as capital gain | Schedule CG — short-term or long-term |
| Continued holding | No tax — disclosure only | Schedule FA every year held |
| Foreign tax withheld | Credit against Indian tax liability | Form 67 + Schedule FSI / TR |
What this guide covers — at a glance
- RSUs are taxed twice — once as salary at vesting, once as capital gains at sale. Most employees plan for only one.
- The holding period runs from the vesting date, and shares listed only on NASDAQ, NYSE, or LSE follow the 24-month test, not the shorter 12-month rule for Indian-listed equity.
- Schedule FA is a disclosure, not a tax — required every year you hold foreign shares, even in years you sell nothing.
- Employer TDS covers only the vesting leg — capital gains, advance tax, Schedule FA, and Form 67 are the employee’s own responsibility.
01What Exactly Is an RSU?
An RSU is your employer’s promise to hand you company shares once you meet certain conditions — typically staying employed through a vesting schedule spread over three or four years. Unlike an Employee Stock Option (ESOP), there is no exercise price: you don’t pay anything to receive the shares. The entire value of what you receive is treated as compensation.
The grant itself is not a tax event. Nothing is taxed when your employer commits to giving you the shares — tax only enters the picture once the shares actually vest and ownership transfers to you.
02RSUs Are Taxed Twice
This is the single most important thing to understand about RSU taxation in India: the same shares are taxed once as salary, and once again as capital gains.
Vesting — Taxed as a Salary Perquisite
On the date the shares vest, the Fair Market Value (FMV) of those shares is added to your salary income for the year and taxed at your applicable income tax slab rate, under Section 17(2)(vi) of the Income Tax Act, 1961.
- What’s taxed: FMV of the shares on the vesting date
- Rate: your applicable income tax slab rate, as part of salary income
- Who deducts it: your employer, via TDS under Section 192, shown on your payslip and Form 16 / Form 130
- Foreign shares: FMV is set by a SEBI Category-I merchant banker’s valuation, converted to Rupees using the SBI TT buying rate
Sale of Shares — Taxed as Capital Gains
When you eventually sell the vested shares, your gain is the sale price minus the FMV that was already taxed at vesting — that FMV becomes your cost of acquisition for capital gains purposes. This gain is taxed as short-term or long-term depending on how long you held the shares after vesting.
100 RSUs vest when FMV is Rs. 2,000 per share. Rs. 2,00,000 is added to that year’s salary income and taxed at slab rate, with TDS deducted accordingly. Eighteen months later, all 100 shares are sold at Rs. 2,600 per share. Capital gain = (Rs. 2,600 − Rs. 2,000) × 100 = Rs. 60,000, taxed separately as a capital gain — on top of the Rs. 2,00,000 already taxed as salary at vesting.
03Short-Term vs. Long-Term — The Holding Period That Applies
The holding period is measured from the vesting date, not the grant date. Where the shares are listed matters: the shorter 12-month test for equity shares only applies to shares listed on a recognised Indian stock exchange. RSUs of a foreign parent, listed only on NASDAQ, NYSE, or LSE, do not qualify for that rule — they follow the 24-month test that applies to unlisted shares and other capital assets.
| Holding Period (from vesting) | Classification | Tax Treatment |
|---|---|---|
| 24 months or less | Short-Term Capital Gain | Taxed at your applicable income tax slab rate |
| More than 24 months | Long-Term Capital Gain | 12.5% flat, no indexation (Sec 112) |
Foreign shares listed only on NASDAQ, NYSE, or LSE do not qualify for the 12-month Indian-listed-equity rule. The 24-month test applies — sell too early and a gain you assumed was long-term at 12.5% is actually short-term at your slab rate.
04Where Does It All Get Reported?
Employees holding RSUs — particularly from a foreign employer — must file ITR-2, or ITR-3 if they also have business or professional income. Four separate parts of the return are involved.
- 1Perquisite value: reflected under Income from Salaries, and should match the figure your employer has reported in Form 16 / Form 130.
- 2Capital gains on sale: reported in Schedule CG, split into short-term and long-term based on the holding period from the vesting date.
- 3Foreign shareholding: reported in Schedule FA — a mandatory foreign asset disclosure, separate from the income reporting above.
- 4Foreign tax already paid: claimed as a Foreign Tax Credit using Form 67, together with Schedule FSI and Schedule TR.
05The Schedule FA Trap
Of everything covered here, this is the requirement employees most often miss — and the one with the most disproportionate downside.
You must report your RSU shares in Schedule FA even if you haven’t sold a single one and earned nothing from them during the year. Simply holding foreign shares as an Indian tax resident triggers the disclosure requirement, regardless of whether any income arose.
For AY 2026-27, Schedule FA covers 1 January to 31 December 2025 — not the usual April-to-March financial year used everywhere else in the return. It’s easy to disclose the wrong window by habit, and doing so leaves the correct period unreported.
Schedule FA isn’t limited to undisclosed income. Missing it — even where the underlying salary income from vesting was fully disclosed and correctly taxed — invites scrutiny and penalty exposure under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The obligation exists independently of whether any tax was actually avoided.
TDS on Your Payslip Is Not Full Compliance
Seeing tax deducted at vesting can create a false sense that the compliance is complete. Your employer only handles the salary leg — everything after the shares vest is your personal responsibility.
Capital gains tax on sale — self-reported; your employer has no visibility into when, or whether, you sell
Advance tax instalments — due in the same year if the gain is significant, separate from salary TDS
Schedule FA disclosure — required every single year you continue to hold the shares
Foreign tax credit claims — via Form 67, where applicable; not automatically adjusted
How Casela Advisors can help
Complete RSU tax computation for AY 2026-27 — reconciling vesting FMV against Form 16 / Form 130, computing capital gains on sale, preparing the Schedule FA disclosure for the correct calendar-year window, and filing Form 67 to claim foreign tax credit where applicable.
Income tax computation — RSU and ESOP tax, capital gains, and self-assessment tax
Schedule FA preparation — correct calendar-year foreign asset disclosure
Form 67 and foreign tax credit filing for tax withheld abroad
ITR true copy certification — for loans, visas, and tenders
06Frequently Asked Questions
How are RSUs taxed in India?
RSUs are taxed twice. At vesting, the Fair Market Value of the shares on the vesting date is added to your salary income and taxed at your income tax slab rate under Section 17(2)(vi), with TDS deducted by your employer under Section 192. Later, when you sell the shares, the difference between the sale price and that same FMV is taxed as a capital gain — short-term or long-term depending on the holding period from the vesting date.
Is the RSU grant itself a taxable event?
No. The grant is simply your employer’s commitment to give you a number of shares once vesting conditions, usually a period of continued employment, are met. You own nothing at grant, so there is no tax. Tax first applies on the vesting date, when ownership of the shares actually transfers to you.
Do I need to disclose RSU shares in Schedule FA even if I haven’t sold them?
Yes. Schedule FA is a disclosure requirement, not a tax on income. If you hold shares of a foreign company as an Indian tax resident, you must report that holding in Schedule FA every year you continue to hold it, regardless of whether you sold any shares or earned any income during the year. Missing this disclosure, even where the related salary income was fully reported and taxed, can invite scrutiny under the Black Money Act.
What period does Schedule FA cover for AY 2026-27?
Schedule FA follows the calendar year, not the April-to-March financial year used elsewhere in the return. For AY 2026-27, Schedule FA covers 1 January 2025 to 31 December 2025. Employees often default to the financial-year window out of habit and end up disclosing the wrong period.
Do RSUs from a foreign employer qualify for the 12-month long-term capital gains rule?
No. The shorter 12-month holding period for long-term treatment applies only to equity shares listed on a recognised Indian stock exchange. RSU shares of a foreign parent listed only on exchanges such as NASDAQ, NYSE, or LSE follow the 24-month test instead. Shares held 24 months or less from vesting are short-term and taxed at slab rate; shares held longer are long-term and taxed at a flat 12.5% without indexation under Section 112.
If my employer already deducted TDS on my RSUs, is my compliance complete?
No. Employer TDS under Section 192 only covers the salary perquisite taxed at vesting. Capital gains tax on eventual sale, any advance tax instalments due on that gain, the annual Schedule FA disclosure, and foreign tax credit claims via Form 67 are all the employee’s personal responsibility and are not handled through payroll.
07The Bottom Line
RSUs are taxed twice — once as salary at vesting, once as capital gains at sale — and, for foreign shares, disclosed every year in between. Employer TDS only covers the first of these. The capital gains computation, the holding-period test, the annual Schedule FA disclosure on the correct calendar-year window, and any foreign tax credit claim through Form 67 remain the employee’s own responsibility. With the July 31, 2026 filing deadline approaching, reconciling all four pieces now — rather than after a notice arrives — is the difference between a routine filing and a scrutiny case.
Get your RSU tax computed correctly
Casela Advisors handles RSU and ESOP tax computation, Schedule FA disclosure, and Form 67 foreign tax credit filing as part of complete ITR filing for AY 2026-27.