For employees of Google, Microsoft, Amazon, Salesforce and other US companies
RSU & ESPP Tax in India, Explained Step by Step
Your RSUs are taxed twice in two different ways: as salary when they vest, and as a capital gain when you sell, but only on the increase after vesting. On top of that you must report every lot in Schedule FA and claim credit for US tax on dividends with Form 67.
This guide walks through each step with a worked example, including the mistake that makes many employees pay tax twice.
Table of Contents
1. Tax at Vesting: It's Salary
When RSUs vest, their market value is a perquisite under Section 17(2)(vi) and is added to your salary. Nothing is taxed at grant.
- Value: number of shares vested × market price on the vesting date (your employer's plan sets which price).
- Exchange rate: the SBI TT buying rate on the vesting date (Rule 26).
- Tax: at your slab rate, deducted by your employer as TDS and shown in Form 16 and Form 12BA.
You don't report this separately: it's already in your salary. Keep Form 12BA, because the vest-date value it shows is your cost when you later sell.
2. Sell-to-Cover Shares
Many employers sell part of each vest (often about a third) to pay the TDS. Those shares are bought and sold almost at the same price on the same day, so the capital gain or loss is tiny, but it is still a sale. Report it as short-term in Schedule CG with the vest value as cost.
3. Tax When You Sell: Capital Gains
Holding period
Starts on the vesting date. More than 24 months = long-term; 24 months or less = short-term.
Rates
STCG at your slab rate. LTCG at 12.5% under Section 112 (US shares are unlisted in India, so no ₹1.25 lakh exemption).
Cost (₹) = vest-date value per share in ₹ (from Form 12BA) × shares sold
Sale value (₹) = sale price ($) × shares sold × SBI TT buying rate (Rule 115)
Capital gain = Sale value − Cost
4. Worked Example
Vest: 100 RSUs vest on 15 March 2025 at $150; SBI TTBR ₹86.
Perquisite: 100 × $150 × ₹86 = ₹12,90,000 added to salary. Your employer sells 31 shares to cover TDS; you keep 69. Cost per share: ₹12,900.
Sale: you sell the 69 shares on 20 January 2026 at $180; rate ₹90.
Sale value: 69 × $180 × ₹90 = ₹11,17,800. Cost: 69 × ₹12,900 = ₹8,90,100.
Held about 10 months, so this is STCG of ₹2,27,700. At a 30% slab: ₹68,310 + 4% cess = ₹71,042.
If you waited until after 15 March 2027 (more than 24 months), the same gain would be LTCG at 12.5%: ₹28,462.50 + cess = ₹29,601, a saving of about ₹41,000.
5. ESPP Shares
With an Employee Stock Purchase Plan you buy shares at a discount. The discount (market value on the purchase date minus what you paid) is taxed as a perquisite in your salary, just like an RSU vest.
For capital gains, your cost is the market value on the purchase date (the amount you paid plus the taxed discount), and the holding period starts on the purchase date.
6. Schedule FA, Dividends and Form 67
ITR-2, not ITR-1
Holding any foreign shares means you must file ITR-2 (ITR-3 with business income), even if all your RSU income is already in Form 16.
Schedule FA every year
Report each holding for the calendar year (January–December): date acquired, initial value, peak value during the year, closing value on 31 December, and income. Include lots you sold during the year. Non-disclosure can attract a ₹10 lakh penalty under the Black Money Act.
Dividends
The US withholds 25% with a W-8BEN. Report the gross dividend in Schedule OS.
Form 67
File it before your ITR to claim credit for the US dividend tax, up to the Indian tax on those dividends.
More detail: Form 67 guide · US dividend tax · ITR filing and Schedule FA
7. Costly Mistakes
Using $0 or the grant price as cost
The vest-date value was already taxed as salary. Leaving it out of your cost taxes the same money twice.
Counting the holding period from the grant date
It starts at vesting. Selling one day too early can turn a 12.5% LTCG into a 30% STCG.
Ignoring sell-to-cover sales
They are small, but they are sales and belong in Schedule CG.
Skipping Schedule FA
Even unsold, unchanged shares must be reported every year, on a calendar-year basis.
Not filing Form 67
Without it, the 25% US tax on your dividends can't be credited, so you pay twice on dividends.
Frequently Asked Questions
Are RSUs taxed twice in India?
No, not on the same money. At vesting, the market value of the shares is taxed as salary. When you sell, only the increase since vesting is taxed as a capital gain, because the vest-date value becomes your cost.
What is the cost of acquisition for RSU shares?
The fair market value on the vesting date that was taxed as a perquisite, converted to rupees at the SBI TT buying rate used for that perquisite. It is shown in your Form 16 / Form 12BA. Using $0 or the grant price as cost means paying tax twice.
When does the 24-month holding period start for RSUs?
From the vesting (allotment) date, not the grant date. Shares held for more than 24 months after vesting give long-term gains, taxed at 12.5% under Section 112.
Do I need to report RSUs in Schedule FA if I haven't sold them?
Yes. Every foreign share you held at any time in the calendar year (January–December) goes in Schedule FA, including unvested-then-vested lots and shares you sold during the year. Unvested RSUs are generally not reported until they vest.
How is ESPP taxed in India?
The discount (market value on the purchase date minus what you paid) is taxed as a perquisite in your salary. The market value on the purchase date becomes your cost, and the holding period starts on the purchase date.
Do I pay US tax on my RSUs?
Not if you earned them while working in India, apart from US withholding on dividends (25% with a W-8BEN). If you worked in the US during the vesting period, part of the income may be taxable there; get advice for that case.
Filing this year? Get the Filing Season Pack
Track every vest and sale, match lots first-in first-out, and export Schedule CG and Form 67 figures for your CA. ₹799 once for 4 months of Premium, with no renewal.
Educational information for Indian tax residents under the Income Tax Act, 1961 (and the Income-tax Act, 2025 from 1 April 2026, which renumbers sections without changing these rules). Not tax advice. If you worked outside India during the vesting period, or hold large positions, have a CA review your return.