Thousands of employees of multinational technology companies in Hyderabad receive restricted stock units (RSUs) or stock options (ESOPs) of their foreign parent company. These shares are taxed twice in India — once as salary and again when sold — and must be reported as foreign assets every year. Errors here are one of the most common reasons for income tax notices to salaried employees.
Stage 1: tax at vesting or exercise
When RSUs vest and shares are allotted, or when ESOPs are exercised, the difference between the fair market value of the shares on that date and the amount you pay (nil for RSUs) is a perquisite, taxed as salary at your slab rate.
- The Indian employer includes the perquisite in your salary and deducts TDS. It appears in Form 16 and Form 12BA.
- Many employers "sell to cover" — part of the shares are sold abroad to meet the tax. These shares are still part of your income and holdings.
- The value taxed as a perquisite becomes your cost of acquisition for computing capital gains later.
Stage 2: tax when you sell
Shares of a foreign company that are not listed on an Indian stock exchange are treated as unlisted shares for Indian tax purposes:
- Held for more than 24 months — long-term capital gain, taxed at 12.5% without indexation (for transfers on or after 23 July 2024).
- Held for 24 months or less — short-term capital gain, taxed at your slab rate.
The holding period runs from the date of allotment. Convert the sale price and the cost into rupees using the exchange rates prescribed under the Income-tax Rules.
Dividends and foreign tax credit
Dividends from the foreign company are taxable in India at your slab rate. Tax is often withheld abroad — for US companies, typically 25% for Indian residents who have submitted Form W-8BEN. You can claim credit for the foreign tax in India under the tax treaty, but only if you file Form 67 with the required details. Without Form 67, the credit is denied.
Schedule FA: reporting foreign assets
Every resident (and ordinarily resident) taxpayer who holds foreign assets must report them in Schedule FA of the income tax return, even if no income arose. This includes:
- Shares and RSUs held in a foreign brokerage account
- The foreign brokerage or bank account itself
- Any other foreign financial interest, such as a foreign retirement or savings account
Schedule FA follows the calendar year (January to December) ending in the financial year, not the financial year itself. Report the peak value during the year, the closing value and the income from each asset.
Taxpayers with foreign assets cannot use ITR-1; they must file ITR-2 (or ITR-3 if they have business income). Schedules FSI and TR are used for foreign income and the tax relief claimed.
Why it matters
Non-disclosure of foreign assets falls under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which carries a penalty of up to ₹10 lakh for each year of non-disclosure, apart from tax and penalty on any undisclosed income. Limited relief applies for small amounts of movable assets, but the safest course is always to report every foreign asset accurately. The department receives information on foreign accounts from other countries under automatic exchange of information.
A checklist for RSU and ESOP holders
- Download the brokerage statements for the full calendar year and financial year.
- Match the perquisite in Form 16 with the vesting records.
- Compute capital gains on each sale lot, including sell-to-cover sales.
- File Form 67 before filing the return, to claim foreign tax credit.
- File ITR-2 with Schedule FA, FSI and TR completed.
Frequently asked questions
Are RSUs taxed in India when they vest?
Yes. The fair market value of the shares on vesting or allotment is a perquisite taxed as salary, and the employer deducts TDS.
How are foreign shares from RSUs taxed when sold?
They are treated as unlisted shares. If held for more than 24 months, the gain is long-term and taxed at 12.5% without indexation; otherwise it is taxed at slab rates. The cost is the value already taxed as a perquisite.
Do I need to report RSUs in Schedule FA if I haven't sold them?
Yes. All foreign assets held at any time during the calendar year must be reported in Schedule FA, whether or not any income arose.
Which ITR form should I file if I hold foreign RSUs?
ITR-2, or ITR-3 if you also have business income. ITR-1 cannot be used by taxpayers with foreign assets.
How we help
ASKN & Co. LLP prepares returns for employees with RSUs, ESOPs and foreign accounts, computes capital gains lot by lot and handles notices arising from earlier years. See our ITR filing and tax planning service.
This article is based on the Income-tax Act, 1961, which applies up to tax year 2025-26. The Income-tax Act, 2025 applies from tax year 2026-27.
This article is general information based on the law as at the date shown and is not professional advice. Please consult us before acting on it.