If you are an Indian resident holding RSUs from a US company, your shares are taxed twice over their lifetime — once as salary when they vest, and again as capital gains when you sell. On top of that, the law requires you to disclose the holding every year, and any dividends bring their own filing steps. Get one part wrong and the consequences range from a tax notice to a flat ₹10 lakh penalty.
This guide walks through exactly what you need to file, in the order it happens: tax at vesting, Schedule FA disclosure, capital gains on sale, and recovering the tax already withheld on your dividends. It is written for the Resident and Ordinarily Resident (ROR) taxpayer filing for FY 2025-26 (Assessment Year 2026-27).
Important
This is educational information, not personalised tax advice. RSU taxation is fact-specific — your residency status, where you worked during the vesting period, your income slab, and your broker records all change the answer. Verify your own position with a qualified Chartered Accountant before filing. Rovia is not a tax advisor.
The two-stage tax: a quick map
| Stage | When it happens | Taxed as | Who deducts / pays |
|---|---|---|---|
| 1. Vesting | The day shares become yours | Salary perquisite under Section 17(2)(vi), taxed at slab rates | Employer deducts TDS under Section 192 |
| 2. Sale | When you sell the vested shares | Capital gains — STCG or LTCG | You pay through advance tax or self-assessment tax |
Separately, dividends are taxed as “Income from Other Sources,” and Schedule FA disclosure runs in parallel every year you hold the shares — independent of whether you owe any tax.
1. Tax at vesting — the perquisite
On the vesting date, the Fair Market Value (FMV) of the shares that vest is treated as a perquisite under Section 17(2)(vi) and added to your salary income. It is taxed at your applicable slab rate.
FMV = the market price of the share on the vesting date, converted to INR using the SBI TT Buying Rate (TTBR) on that date.
Your employer deducts TDS under Section 192 on this perquisite. Most do this through sell-to-cover — selling a portion of the vested shares to fund the tax — so you receive the net shares.
This perquisite already appears in your Form 16 / Form 12BA.
Why it matters later
Under Section 49(2AA), the FMV taxed as a perquisite becomes your cost of acquisition for capital gains. So when you sell, you only pay tax on the gain above the vesting-day value — not the whole sale amount.
Worked example
100 shares vest at an FMV of $50 each; SBI TTBR that day is ₹83/$. Perquisite value = 100 × $50 × ₹83 = ₹4,15,000, added to salary and taxed at your slab.
If your employer sells, say, 30 shares to cover TDS, you keep 70 shares with a cost basis of ₹4,150 each ($50 × ₹83).
Overseas workdays (apportionment)
If you spent part of the vesting period working outside India, only the India-attributable portion of the perquisite may be taxable here, with the rest taxable in the source country. This is a complex, fact-specific calculation — get professional help rather than assuming the full amount is taxable in either country.
2. Schedule FA — the disclosure you cannot skip
This is where most RSU holders get caught out. Schedule FA (Foreign Assets) is a mandatory disclosure of every foreign asset you hold — it is about reporting, not paying tax. You must report your RSU shares even if you earned nothing from them and have not sold a single one.
Who must file it: only Resident and Ordinarily Resident (ROR) individuals. Non-Residents (NR) and Resident but Not Ordinarily Resident (RNOR) are not required to file Schedule FA.
The calendar-year trap: unlike the rest of your return (April–March), Schedule FA is reported on the calendar year (1 January – 31 December). For AY 2026-27 (FY 2025-26), you disclose foreign assets held between 1 January 2025 and 31 December 2025.
There is no minimum threshold for reporting. You must disclose the holding even if you held a single share for a single day.
Holding foreign shares makes ITR-1 (Sahaj) ineligible. You must file ITR-2, or ITR-3 if you also have business income.
What to report and where
| Item | Schedule | Notes |
|---|---|---|
| Vested RSU shares held | Schedule FA, Table A3 | Every year from vesting until the year of sale |
| Foreign bank / brokerage account | Schedule FA, Table A1/A2 | Even if dormant or zero balance |
| Dividends received | Schedule OS + Schedule FSI | Also claim relief in Schedule TR where eligible |
| Capital gains on sale | Schedule CG | Apply the 24-month holding-period test |
For each RSU holding you typically report the initial value (FMV at vesting), the peak value during the calendar year, and the closing value — all in INR using SBI TTBR on the relevant dates.
Non-disclosure can attract a flat ₹10 lakh penalty per year under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015 — regardless of whether any tax was due.
One genuine relaxation — use with care
From 1 October 2024, the ₹10 lakh penalty does not apply where the aggregate value of foreign movable assets, excluding immovable property, does not exceed ₹20 lakh. This is a penalty carve-out only — the obligation to disclose still applies with no threshold. Do not read this as permission to skip reporting.
India now receives foreign account data automatically under global information-sharing agreements, and the tax department actively cross-checks ITRs against it — so mismatches increasingly trigger notices.
3. Capital gains when you sell RSU shares
When you sell the shares you kept, you pay capital gains tax on the difference between the sale price and your cost of acquisition.
- ✓Cost of acquisition = FMV at vesting, already taxed as a perquisite, at SBI TTBR on the vesting date.
- ✓Sale consideration = actual sale price, at SBI TTBR on the sale date.
- ✓Holding period runs from the vesting date, not the grant date.
US shares are treated as unlisted/foreign shares for Indian tax — not listed on an Indian exchange, no STT paid. That puts them under Section 112, with a 24-month holding-period threshold.
Rates for sales on or after 23 July 2024
| Holding period from vesting | Type | Tax rate |
|---|---|---|
| More than 24 months | Long-Term Capital Gain (LTCG) | 12.5% + surcharge + 4% cess, no indexation |
| 24 months or less | Short-Term Capital Gain (STCG) | Added to income and taxed at slab rate |
These rates were set by Budget 2024 and left unchanged by the 2025 and 2026 Budgets, so they apply for FY 2025-26.
Critical clarification
The ₹1.25 lakh LTCG exemption applies only to Section 112A assets — Indian-listed equity and equity mutual funds where STT is paid. It does not apply to US/foreign shares. Your foreign-share LTCG is taxable from the first rupee at 12.5%.
Surcharge note for high earners
Surcharge on LTCG under Section 112 — where foreign shares fall — is capped at 15%, even at higher income. This cap does not apply to STCG on foreign shares, which is taxed as ordinary slab income and can attract higher surcharge. One more reason the 24-month line is worth planning around.
Why sell-to-cover usually creates near-zero gain: when your employer sells shares on the vesting day to cover TDS, the sale price is usually close to the FMV, which is your cost basis. You still report it in Schedule CG, but there is usually little or no extra tax on that leg.
Worked example
You sell 70 shares 30 months after vesting at $90 each. SBI TTBR is ₹85/$ on the sale date, and your cost basis is ₹4,150/share.
Sale value = 70 × $90 × ₹85 = ₹5,35,500. Cost = 70 × ₹4,150 = ₹2,90,500. LTCG = ₹2,45,000, taxed at 12.5% = ₹30,625 + surcharge, if applicable, + 4% cess.
If instead you had sold within 24 months, the entire ₹2,45,000 would be added to your income and taxed at your slab rate.
4. Dividends — how to recover the tax already withheld
People phrase this as “how do I claim back the dividend tax?” — and the framing is worth correcting, because it changes what you actually do.
You do not get a refund from the US in the normal course. When a US company pays you a dividend, the US withholds tax at source. India lets you offset that US tax against your Indian tax on the same dividend through a Foreign Tax Credit (FTC) under the India-US DTAA. That is how you avoid being taxed twice.
With a valid Form W-8BEN on file, the US withholds 25% on dividends under Article 10 of the India-US DTAA. Without W-8BEN, the default is 30%.
Watch out for the 15% myth
Several Indian websites quote a 15% DTAA dividend rate. For an individual RSU holder the correct treaty rate is 25%. The 15% rate applies only to corporate shareholders owning at least 10% of the paying company’s voting stock — not to you.
In India, the gross dividend before US withholding is your income, reported under Income from Other Sources (Schedule OS) and taxed at your slab rate. The 25% already withheld does not reduce your taxable income — it is claimed separately as a credit.
The steps to claim the credit
- File Form 67 on the e-filing portal to claim FTC. Under the amended Rule 128(9), the deadline is the end of the relevant assessment year — for AY 2026-27, on or before 31 March 2027 — provided your ITR was filed within the Section 139(1) or 139(4) time limit. Best practice is still to file Form 67 before you submit your ITR so the credit flows through cleanly.
- Report the income in Schedule FSI (Foreign Source Income) — income, country code, and the foreign tax paid.
- Claim the relief in Schedule TR (Tax Relief), matching the figures to Form 67.
- Keep proof of foreign tax paid — your broker’s Form 1042-S and dividend statements.
The credit is capped at the lower of (a) the US tax paid, or (b) the Indian tax payable on that same dividend income.
Worked example
You receive a $1,000 gross dividend; the US withholds 25% = $250, so $750 lands in your account. In India, you report the full $1,000 (in INR) as Income from Other Sources. If your Indian slab tax on it is 30%, the Indian tax is $300. You claim an FTC of $250. Net additional tax in India = $50. Total across both countries = $300, not $550.
Forward-looking flag
The CBDT has issued draft Income Tax Rules in early 2026 that would replace Form 67 with a new form and add a CA-certification requirement for large FTC claims, and Budget 2026-27 removed the interest-expense deduction against dividend income from FY 2026-27. These are not in effect for the FY 2025-26 return — but watch for them next year.
Filing checklist for RSU holders (FY 2025-26)
- ✓Confirm your residency status — ROR, RNOR, or NR. Schedule FA applies only to ROR.
- ✓Use ITR-2, or ITR-3 if you have business income — never ITR-1 if you hold foreign shares.
- ✓Verify the perquisite in Form 16 / Form 12BA and reconcile it against your broker statement.
- ✓Disclose all RSU holdings in Schedule FA on a calendar-year basis (1 Jan–31 Dec 2025), with initial, peak, and closing values in INR using SBI TTBR.
- ✓Report any sale in Schedule CG — apply the 24-month test from the vesting date; LTCG at 12.5%, STCG at slab.
- ✓Report dividends in Schedule OS at the gross amount.
- ✓File Form 67, ideally before the ITR but no later than 31 March 2027 for AY 2026-27, then complete Schedules FSI and TR to claim the foreign tax credit.
- ✓Keep your evidence: vesting statements, Form 1042-S, broker transaction history, and INR-conversion working papers.
Related Rovia guides
What sell-to-cover means and why shares disappear on vest day
What the SBI TTBR rate is, and why it matters for your taxes
Schedule FA: the disclosure most Indian RSU holders are quietly missing
Disclaimer: This article is for general information only and does not constitute tax, legal, or financial advice. Tax law changes and individual circumstances vary. Consult a qualified Chartered Accountant before filing.
