Key Takeaways
- RSUs are taxed twice: as a salary perquisite on the vesting date, and as capital gains when you sell.
- Shares of a foreign parent are treated as unlisted in India. The long-term holding period is 24 months from vesting, not 12, and long-term gain is taxed at 12.5% without indexation.
- The Rs 1.25 lakh long-term exemption does not apply. That relief belongs to Indian-listed shares on which STT is paid.
- Schedule FA disclosure is mandatory for a resident and ordinarily resident holder, whether or not a single share was sold, and it runs on the calendar year rather than the financial year.
- Form 67 must be filed on or before the ITR due date to claim credit for US tax withheld. File it late and the credit is gone for that year.
- Holding even one foreign share rules out ITR 1 and ITR 4. You file ITR 2, or ITR 3 if you also have business income.
If you work for a US parent from Hyderabad, Bengaluru, or Pune, restricted stock units are probably the second-largest line in your compensation and the largest source of confusion in your return. The rules themselves are not complicated. What catches people is that three separate obligations arise from one grant, they fall due at different times, and only one of them is handled by your employer.
The department is now matching foreign asset data received under FATCA, CRS, and the wider automatic exchange framework against filed returns, and sending compliance alerts where the two disagree. An unreported brokerage account is no longer invisible.
Looking for expert help with RSU tax India, RSU taxation AY 2026-27, Schedule FA RSU disclosure, foreign tax credit RSU India, RSU 24 month holding period? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Three Stages, Two Tax Events
| Stage | What happens | Tax | Head of income |
|---|---|---|---|
| Grant | A conditional promise of shares | None | Not applicable |
| Vesting | Shares are delivered to your broker account | FMV on the vesting date | Salary, as a perquisite |
| Sale | You dispose of the shares | Gain above the vesting FMV | Capital gains |
Nothing is taxed at grant because nothing has been transferred. Section 17(2)(vi) of the Income Tax Act, 1961 taxes the allotment or transfer of specified securities, not a contractual right to receive them later. An RSU that never vests is never taxed.
This is also where RSUs part company with options. An ESOP has an exercise price and the perquisite is the spread between fair market value and what you paid. An RSU normally has no exercise price, so the entire fair market value is the perquisite. For the option side of this, see our ESOP taxation guide.
Stage One: The Perquisite at Vesting
Perquisite value = FMV on the vesting date x number of shares vested
For shares listed only on a foreign exchange, the fair market value is the price on that exchange, converted to rupees using the SBI telegraphic transfer buying rate on the last day of the month immediately preceding the month of vesting, under Rule 115.
Worked Example
100 RSUs of a US-listed parent vest on 15 January 2026. The share price on that date is USD 100. The SBI TTBR on 31 December 2025 is Rs 84.50.
| Particulars | Amount |
|---|---|
| Units vested | 100 |
| FMV per share | USD 100 |
| Conversion rate, 31 December 2025 | Rs 84.50 |
| Perquisite added to salary | Rs 8,45,000 |
That Rs 8,45,000 sits inside your salary income and is taxed at your slab rate. At the 30 percent slab with cess, the tax on it is roughly Rs 2.64 lakh before any foreign tax credit.
Who Pays the Tax, and How
Your employer must deduct TDS on the perquisite under Section 192. Most global employers handle it through sell to cover: a slice of the vested shares is sold on the vesting date and the proceeds remitted as tax. Some employers instead recover it from your cash salary, which makes that month's take-home drop sharply.
Two checks are worth making every vest:
- The perquisite value appears in Form 16, and in Form 12BA where your salary exceeds Rs 1,50,000.
- The number of shares sold to cover is itself a sale. It has its own capital gain, usually close to nil because it happens on the vesting day, but it still belongs in Schedule CG.
The second point is the single most common omission in RSU returns. People report the shares they chose to sell and forget the ones the employer sold on their behalf.
Stage Two: Capital Gains on Sale
Once vested, the shares sit in an E-Trade, Fidelity, or Schwab account and are treated like any other foreign share.
The 24-Month Rule
No securities transaction tax is paid on a foreign exchange, so these shares do not get the treatment Indian-listed equity gets. They are classified as unlisted for holding period purposes.
| Held after vesting | Classification | Rate |
|---|---|---|
| 24 months or less | Short term | Your slab rate, plus surcharge and cess |
| More than 24 months | Long term | 12.5%, without indexation |
The clock starts on the vesting date, not the grant date. A four-year grant vesting quarterly creates sixteen separate holding periods, and your broker's average cost basis will not track any of them correctly for Indian purposes.
The Rs 1.25 lakh exemption under Section 112A is not available here. It applies to STT-paid Indian listed equity only. A long-term gain of Rs 1 lakh on RSUs is taxed in full at 12.5 percent, where the same gain on an Indian share would be exempt.
Cost of Acquisition
Your cost is the FMV already taxed as a perquisite at vesting, in rupees at the vesting-month rate. This is what stops the same money being taxed twice. You pay capital gains tax only on the appreciation after vesting.
Worked Example
Continuing the example, you sell all 100 shares on 20 March 2027 at USD 130. The SBI TTBR on 28 February 2027 is Rs 86.
| Particulars | Working | Amount |
|---|---|---|
| Sale consideration | 100 x USD 130 x Rs 86 | Rs 11,18,000 |
| Cost of acquisition | 100 x USD 100 x Rs 84.50 | Rs 8,45,000 |
| Capital gain | Rs 2,73,000 | |
| Holding period | 15 Jan 2026 to 20 Mar 2027 | About 14 months |
| Classification | Short term | Slab rate |
Hold the same shares past 15 January 2028 and the gain becomes long term at 12.5 percent. On a Rs 2.73 lakh gain, that is the difference between roughly Rs 85,000 of tax at the 30 percent slab and about Rs 34,000. The currency movement is part of the gain, which cuts both ways: a rupee that weakens between vesting and sale increases your taxable gain even if the share price never moved.
Nobody Deducts Tax on the Sale
There is no TDS on a sale through a foreign broker, and the trade may not reach your AIS or TIS before the filing deadline. Neither fact makes it optional to report. The remittance into your Indian bank account, the FATCA and CRS reporting by the broker, and treaty information requests all reach the department independently.
Advance Tax
Capital gains carry no withholding, so the liability is yours to pay during the year. Advance tax under Sections 207 to 211 becomes payable once total tax liability for the year exceeds Rs 10,000, in instalments on 15 June, 15 September, 15 December, and 15 March. Shortfalls attract interest under Section 234B and Section 234C at 1 percent a month.
Capital gains are the one item the law does not expect you to forecast. Where the gain arises after an instalment date, it is enough to pay the tax on it in the remaining instalments, or by 31 March, without 234C interest on the earlier ones.
Schedule FA: The Obligation That Has Nothing to Do With Selling
This is where most RSU returns fail, and it is the one that carries the largest penalty.
Who Has to File It
| Residential status | Schedule FA |
|---|---|
| Resident and ordinarily resident | Required if any foreign asset was held at any time in the reporting period |
| Resident but not ordinarily resident | Generally not required |
| Non-resident | Generally not required |
What Goes In
| What you hold | Table |
|---|---|
| Vested shares of the foreign parent | A3, foreign equity and debt interest |
| The foreign brokerage account itself | A2, foreign custodial account |
| Any other foreign capital asset | D |
The brokerage account is a separate disclosure from the shares inside it. Reporting one and not the other is still an incomplete return.
The Calendar Year Trap
Schedule FA does not follow the Indian financial year. It follows the calendar year ending 31 December that falls inside the previous year. For AY 2026-27, you report foreign assets held at any time between 1 January 2025 and 31 December 2025.
A vest on 20 December 2025 belongs in the AY 2026-27 return. A vest on 20 January 2026 does not, and goes into next year's instead, even though both sit in FY 2025-26.
Held at Any Time, Not Held at Year End
Shares you bought and sold inside the reporting period still get reported. Table A3 has columns for the initial value, the peak value, the closing value, and the proceeds from sale or redemption precisely because the schedule is about what passed through your hands, not what remained at 31 December. Selling everything in November does not remove the obligation.
The same goes for the perquisite already taxed in your salary. Having paid tax on the vest does not discharge the disclosure. They are different obligations under different provisions.
The Form Restriction
One vested foreign share is enough to rule out ITR 1 and ITR 4. You file ITR 2, or ITR 3 if you also have business or professional income. See our ITR 2 guide for AY 2026-27.
The Penalty
Failure to disclose a foreign asset attracts a penalty of Rs 10 lakh under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015. It applies per year of default and is not proportionate to the value of the asset. A forgotten brokerage account holding Rs 3 lakh of shares carries the same Rs 10 lakh exposure as one holding Rs 3 crore.
Foreign Tax Credit: Recovering the US Tax
Your US employer withholds US federal tax on the vesting income, usually at the 22 percent supplemental wage rate. India taxes the same income as salary. The India-US treaty and Section 90, read with Rule 128, let you set one against the other.
Credit allowed = the lower of the tax paid in the US, or the Indian tax on that same income
Worked Example
| Particulars | Amount |
|---|---|
| RSU perquisite taxed in India | Rs 12,50,000 |
| Indian tax at the 30% slab | Rs 3,75,000 |
| US tax withheld at 22% | Rs 2,75,000 |
| Foreign tax credit | Rs 2,75,000 |
| Net payable in India | Rs 1,00,000 |
One caveat the worked example hides: credit is for tax finally borne, not tax withheld. The 22 percent supplemental rate is an estimate. If your US return refunds part of it, the credit has to be reduced, and a revised Indian return may be needed. Keep the US filing outcome, not only the withholding statement.
Form 67 Is the Whole Ball Game
| Item | Requirement |
|---|---|
| Deadline | On or before the ITR due date under Section 139(1) |
| Missed deadline | The credit lapses for that year |
| Supporting documents | Form 1042-S or W-2, the vesting statement, broker statements, Form 16 |
| Related schedules | Foreign income in Schedule FSI, the credit itself in Schedule TR |
Form 67 is filed separately on the e-filing portal, and it is easy to assume the claim in Schedule TR is enough. It is not. The claim without the form fails at processing. Our Form 67 walkthrough covers the filing itself, and the India-US DTAA guide covers how the treaty allocates the income.
The Year-End Mismatch
The US taxes on a calendar year, India on a financial year to 31 March. A January 2026 vest is taxed by the US in its 2026 return and by India in FY 2025-26. Rule 128 allows the credit in the Indian year in which the corresponding income is offered to tax, so the two do line up, but the paperwork proving it arrives from the US months after the Indian deadline. Claim on the withholding statement, and revise if the final US position differs.
Your Checklist
On each vesting date
- Record the FMV and the vesting date. Every tranche is its own holding period.
- Note the SBI TTBR for the last day of the preceding month.
- Confirm the perquisite in Form 16 and Form 12BA.
- Record how many shares were sold to cover, and at what price. That sale is reportable.
On each sale
- Convert proceeds at the TTBR for the last day of the month before the sale.
- Match each lot to its vesting date to fix the holding period. Do not use the broker's average cost.
- Pay advance tax in the instalment following the sale.
At filing
- File ITR 2 or ITR 3, never ITR 1 or ITR 4.
- Report every vested holding in Schedule FA Table A3, and the brokerage account in Table A2, on the calendar year basis.
- Report gains in Schedule CG, foreign income in Schedule FSI, and the credit in Schedule TR.
- File Form 67 before the due date.
Common Mistakes
- Skipping Schedule FA because nothing was sold. The disclosure attaches to holding the asset. A vest with no sale is still reportable.
- Using the financial year for Schedule FA. The schedule runs to 31 December. A January to March vest belongs in the following year's return.
- Missing the sell-to-cover sale. Shares the employer sold on your behalf are your sale, with your capital gain.
- Applying the 12-month holding period. Foreign shares need 24 months. Selling at month 13 costs you slab rate instead of 12.5 percent.
- Claiming the Rs 1.25 lakh exemption. It does not reach foreign shares.
- Filing Form 67 after the return. The credit is lost for the year, with no way back.
- Taking the broker's cost basis. It is in dollars at the US basis. Your Indian cost is the perquisite value in rupees at the vesting-month rate.
A Note on the Income Tax Act, 2025
AY 2026-27, being FY 2025-26, is filed under the Income Tax Act, 1961. The Income Tax Act, 2025 applies from tax year 2026-27.
The substance above carries forward. RSUs remain taxable as a perquisite on vesting and as capital gains on sale, the 24-month period for foreign shares continues, foreign asset disclosure continues, and treaty credit continues under the same rules. What changes is the section numbering and some form names. Cite the 1961 provisions for anything relating to AY 2026-27, and confirm the new numbering against the department's own mapping before relying on it for later years.
Where Tax Garden Helps
An RSU return touches salary, capital gains, foreign assets, and treaty relief at once, and three of those four are invisible to your employer. Tax Garden's CAs reconcile each vesting tranche to its own holding period and conversion rate, compute the gain on both your sales and the sell-to-cover, prepare Schedule FA on the calendar year basis, file Form 67 before the deadline, and file ITR 2 or ITR 3 with Schedules CG, FSI, and TR complete.
If a compliance alert on foreign assets has already reached you, bring it with the broker statements. See our plans or talk to the team.
For related reading, see our guides on tax on foreign stocks, ESOP taxation, and claiming foreign tax credit through Form 67.
RSU Tax in India: Common Questions
How are RSUs taxed in India?
In two stages. On vesting, the fair market value of the shares delivered is taxed as a salary perquisite under Section 17(2)(vi) at your slab rate, with TDS deducted by your employer under Section 192. On sale, the gain above that vesting value is taxed as capital gains, at slab rate if held 24 months or less and at 12.5% if held longer.
What is the holding period for RSUs of a foreign company?
24 months from the vesting date. Foreign-listed shares carry no securities transaction tax, so they are treated as unlisted in India and do not get the 12-month period that applies to Indian listed equity. The clock runs separately for each vesting tranche.
Does the Rs 1.25 lakh long-term exemption apply to RSUs?
No. The exemption under Section 112A is confined to Indian listed shares and equity mutual funds on which STT has been paid. A long-term gain on foreign shares is taxed at 12.5% from the first rupee.
Do I have to file Schedule FA if I never sold any shares?
Yes. Schedule FA reports foreign assets held, not income earned. A resident and ordinarily resident taxpayer who held vested foreign shares at any time during the reporting period must disclose them, along with the foreign brokerage account, whether or not anything was sold.
What period does Schedule FA cover?
The calendar year, not the financial year. For AY 2026-27 you report foreign assets held at any time between 1 January 2025 and 31 December 2025. A vest in January 2026 belongs in the following year's return.
What is the penalty for not disclosing RSUs in Schedule FA?
Rs 10 lakh under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, applied per year of default and independent of the value of the asset. The department receives foreign account data through FATCA, CRS, and the automatic exchange framework, and issues compliance alerts where filings do not match.
How do I claim credit for the US tax withheld on vesting?
Claim foreign tax credit under Section 90 read with Rule 128 and the India-US treaty. The credit is the lower of the US tax on that income or the Indian tax on it. File Form 67 on the e-filing portal on or before the ITR due date, report the income in Schedule FSI, and claim the credit in Schedule TR.
What happens if Form 67 is filed after the ITR due date?
The credit is lost for that year. There is no mechanism to claim it later, so the US tax becomes an unrecovered cost. File Form 67 before the return, not after it.
Which ITR form applies if I hold RSUs?
ITR 2, or ITR 3 if you also have business or professional income. Holding any foreign asset, including a single vested share, rules out ITR 1 and ITR 4.
Are the shares my employer sold to cover tax also reportable?
Yes. A sell-to-cover is a sale of your shares and produces a capital gain of its own, usually small because it happens on the vesting day. It belongs in Schedule CG along with your own sales. Omitting it is one of the most common errors in RSU returns.
Do I have to pay advance tax on RSU gains?
Yes, once total tax liability for the year exceeds Rs 10,000. No tax is withheld on a sale through a foreign broker, so the liability falls on you across the instalments on 15 June, 15 September, 15 December, and 15 March, with interest under Sections 234B and 234C on shortfalls.
Work with the Trusted Tax & Compliance Services in Kondapur, Hyderabad - Tax Garden for expert GST filing, ITR, TDS, ROC, and startup compliance support.
Frequently Asked Questions: Tax Services in Kondapur & Hyderabad
What makes Tax Garden a preferred GST consultant in Kondapur?
Tax Garden is ISO 9001:2015 certified and backs every engagement with Kavach, our ₹50,000 error-protection cover. Our flat-fee, no-surprise pricing and dedicated account manager make us a compliance partner for startups and SMEs in Kondapur's HITEC City corridor.
Why is Tax Garden a trusted tax compliance partner in Hyderabad?
Trust comes from three pillars at Tax Garden. First, transparency: you know the exact fee before you sign up, and it never changes mid-year. Second, certified expertise: our compliance team is qualified, and the firm holds ISO 9001:2015 certification. Third, accountability: Kavach, our unique error-protection plan, covers up to ₹50,000 in service charges for any clerical mistake made by our team.
Is there a reliable tax consultant near me in Kondapur?
Yes. Tax Garden's office is in Kondapur itself (CWS One Building, Hanuman Nagar). You can book an in-person consultation or get everything done fully online via WhatsApp and our client portal. We serve walk-in clients by appointment and remote clients across all of Hyderabad and Telangana.
I want a friendly CA who explains things clearly. Is that Tax Garden?
Absolutely. Every client gets a dedicated account manager reachable on WhatsApp, plain-language explanations of what is filed and why, and proactive reminders before every deadline. No jargon, no surprises, just friendly, expert compliance support from Kondapur.
Where is Tax Garden located in Hyderabad?
Tax Garden is located at 4th Floor, South Block, CWS One Building, Hanuman Nagar, Kondapur, Hyderabad, Telangana 500084. We serve clients across Kondapur, HITEC City, Gachibowli, Madhapur, Jubilee Hills, Banjara Hills, and all of Hyderabad.
Can I get GST filing and registration services in Kondapur?
Yes. Tax Garden offers end-to-end GST services from our Kondapur office: GST registration, GSTR-1, GSTR-3B, GSTR-9 annual returns, ITC reconciliation, e-invoicing setup, and GST notice handling for businesses of all sizes in Kondapur and Hyderabad.
Do you file ITR for salaried employees and businesses in Hyderabad?
Yes. Our Kondapur team files ITR for salaried employees, freelancers, consultants, business owners, LLPs, and companies across Hyderabad. We cover ITR-1 through ITR-6 with complete Chapter VI-A deduction reconciliation, AIS reconciliation, and proactive deadline management.
Which areas in Hyderabad does Tax Garden serve?
Tax Garden's Kondapur office serves clients across Hyderabad including HITEC City, Gachibowli, Madhapur, Jubilee Hills, Banjara Hills, Begumpet, Secunderabad, Ameerpet, Kukatpally, Uppal, LB Nagar, and all of Telangana. Most services are available fully online.
What compliance services does Tax Garden offer for startups in Kondapur?
Tax Garden is a compliance partner for startups in Kondapur and Hyderabad's HITEC City corridor. We handle company incorporation, GST registration, TDS filings, payroll, ROC annual filings, director KYC, and annual ITR filing, all under one flat-fee plan.
How does Tax Garden's compliance model compare to traditional hourly accounting services in Hyderabad?
Unlike traditional accounting practices that charge hourly and are difficult to reach, Tax Garden operates on flat-fee subscription plans with a dedicated account manager, monthly compliance updates, and WhatsApp-first communication. Our AI-powered workflow catches errors before filings are submitted, and Kavach error-protection ensures you are never left alone if something goes wrong.
Sources
Verified against Section 17(2)(vi), Section 90, Sections 207 to 211, Section 112A, and Sections 234B and 234C of the Income Tax Act, 1961; Rule 115 and Rule 128 of the Income Tax Rules, 1962; the Schedule FA instructions to ITR 2 and ITR 3 for AY 2026-27; the India-US Double Taxation Avoidance Agreement; and Section 43 of the Black Money (Undisclosed Foreign Income and Assets) Act, 2015. Conversion rates, holding period thresholds, and rates change with each Finance Act. Confirm the position on incometax.gov.in before filing, and take advice on your own facts where a vesting schedule straddles a change of residential status.
