RSU tax for NRI: what Indian tax do you actually owe?

An Indian software engineer moved to the US on H-1B in 2021. She has been vesting RSUs from her US employer's quarterly schedule ever since. Last year she asked a straightforward question: does India have any claim on those RSUs?

It is a question more NRIs should ask, because the answer is largely reassuring and the misconception is common. Many Indian expats assume they owe Indian tax on their global income even while living abroad. The assumption is wrong. India taxes non-residents only on Indian-source income. The analysis is specific, but the conclusion for most NRIs with US employer RSUs is: no Indian tax liability on the RSUs themselves.

The 30-second answer: India taxes NRIs (Non-Residents under Section 6) only on income that accrues or arises in India or is received in India, per Section 5(2) of the Income Tax Act. For an NRI working abroad at a foreign employer, RSU perquisite income accrues outside India (you performed the services abroad), and capital gains from selling US shares arise outside India. Neither is taxable in India while you are an NRI. Dividends received in your US brokerage account are also outside India's tax net. The exception is if part of the RSU vesting period was attributable to services rendered in India while you were a resident — that portion may attract Indian tax. Schedule FA disclosure is required if you file ITR-2, but the RSU assets themselves are not taxed. When you return to India and eventually become Resident and Ordinarily Resident (ROR), global income becomes taxable — that transition year is where careful planning matters.

For the full two-event RSU tax framework for Indian residents, see RSU taxation in India: the complete guide.

First: understand your residential status

Indian income tax uses a specific residential status test under Section 6 of the Income Tax Act. It is not based on visa status, domicile, or citizenship. It is based on days physically present in India.

For a financial year (April 1 to March 31), you are:

• NR (Non-Resident): Present in India for fewer than 182 days in the financial year (basic test). Or, if you have been an Indian citizen or person of Indian origin visiting India, fewer than 120 days in the year and fewer than 365 days across the preceding 4 years.

• RNOR (Resident but Not Ordinarily Resident): You are a Resident under the above tests, but you were an NR for 9 of the preceding 10 financial years, OR you were present in India for 729 days or fewer across the preceding 7 financial years. RNOR is a transitional status that protects foreign income.

• ROR (Resident and Ordinarily Resident): You do not qualify as NR or RNOR. This is the status of a settled Indian resident. Global income is fully taxable.

For a tech professional who moved to the US in 2021 and has not returned to India for any extended period: they are almost certainly NR for each financial year since departure.

The residential status is computed fresh every financial year. The status in one year has no automatic carry-over to the next.

For NRIs: what India can and cannot tax

Section 5(2) of the Income Tax Act defines the scope of a non-resident's total income. India can tax an NRI on:

(a) Income received or deemed to be received in India, or (b) Income that accrues or arises in India, or is deemed to accrue or arise in India.

That is it. Income that accrues outside India and is received outside India is outside India's tax jurisdiction for a non-resident.

RSU perquisite at vest

When your RSUs vest, the income is a perquisite for services rendered. The key question: where did you render those services?

If you performed your work in the US for a US employer during the vesting period, the perquisite income accrues in the US. It does not accrue or arise in India. It is not received in India. India has no claim on it under Section 5(2).

The India-US DTAA reinforces this. Article 15 (Dependent Personal Services) provides that income from employment is taxable in the state where the employment is exercised. If you work in the US, the US has primary taxing rights over your employment income, including RSU perquisite. India's DTAA override does not give India a claim it does not otherwise have under domestic law — but it confirms the US's right to tax and eliminates any residual Indian claim.

Capital gains at sale

When you sell your US RSU shares, the transfer occurs on a US exchange, the shares are held in a US brokerage account, and the sale proceeds land in a US bank account. The gain arises from the transfer of a foreign asset by a non-resident. It does not accrue or arise in India. It is not received in India.

Section 5(2) does not bring this gain into India's tax net. The capital gain is simply not taxable in India for an NRI.

Dividends

If the US company pays dividends, those dividends are declared by a US company, credited to a US brokerage account. They are neither accruing in India nor received in India. Not taxable in India for an NRI.

The US withholds 25% on the dividends under India-US DTAA Article 10. For an NRI with no Indian tax on this income, there is no Indian tax against which to claim a credit. The US withholding is a US-side cost.

The exception: RSUs attributable to Indian services

The perquisite analysis above assumes you performed all your services abroad. If your RSU grant period straddles your move out of India, part of the vesting may be attributable to services rendered in India while you were a resident.

The allocation is typically computed as a fraction: (days worked in India during the grant-to-vest period) / (total days in the grant-to-vest period) × total perquisite value. That fraction is Indian-source income and taxable in India in the year of vest.

For someone who moved out of India in early 2021 and has been vesting RSUs granted in 2022 or later, there is no Indian-service component — the entire grant-to-vest period was outside India. For someone with RSU grants from 2019 or 2020 that vest partly after leaving India, the allocation calculation is necessary.

This is also where an employer TDS deduction can be incorrectly calculated. If your Indian employer entity deducted TDS on the full perquisite value without allocating out the foreign-service portion, you may have had excess TDS deducted. That excess is refundable via your ITR.

Schedule FA: disclosure without taxation

Even if your RSU income is not taxable in India, you may still be required to disclose your foreign assets in Schedule FA of ITR-2.

Schedule FA is a disclosure requirement, not a tax requirement. Disclosing an asset in Schedule FA does not trigger Indian tax on it. But failing to disclose when required can attract significant penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 — up to Rs 10 lakh per year per undisclosed asset, plus prosecution risk.

The triggering condition: you must disclose in Schedule FA if you are filing ITR-2. The condition for filing ITR-2 as an NRI: if your total Indian income (from Indian sources only, for an NRI) exceeds the basic exemption limit.

For an NRI with:

• NRE account interest: exempt from Indian tax
• NRO account interest: taxable in India (TDS deducted at 30%)
• Rental income from Indian property: taxable in India
• Indian equity or mutual fund gains: taxable in India

If NRO interest plus rental income exceeds the basic exemption limit, you must file ITR-2, and that ITR-2 must include Schedule FA with your US RSU holdings.

For a strict NRI with no Indian income at all (no NRO account, no Indian property, no Indian investments): there is no filing obligation, and therefore no Schedule FA obligation.

If you are unsure, file anyway. There is no penalty for filing ITR-2 when you were not required to. There is a penalty for not filing Schedule FA when you were required to.

See what is Schedule FA and why every RSU holder must file it for the exact fields.

The RNOR transition: the year to get right

RNOR is the transitional residential status for someone who has returned to India but has been an NRI long enough to qualify. It typically applies for 2 to 3 financial years after a long stint abroad.

An RNOR is a resident for most purposes but retains one key protection: foreign-source income is not taxable in India while you are RNOR.

This means: RSU perquisite that vests while you are RNOR (but outside India, from a foreign employer) is not taxable in India. Capital gains from selling US shares while you are RNOR are not taxable in India. The protection is similar to NR status for foreign income.

What is taxable for an RNOR: income that accrues or arises in India (rental income, Indian salary, Indian interest, etc.).

The RNOR window is a one-time opportunity. Once you become ROR, the protection ends. Common mistake: returning to India in year N, becoming ROR in year N+2 or N+3, and discovering that the RNOR years could have been used to sell foreign assets, including RSUs, at zero Indian tax. For a high-concentration RSU holding, this is a significant planning opportunity.

The returning to India with US RSUs: the complete playbook covers the RNOR window strategy in detail.

When you become ROR: global income, fully taxable

Once your residential status shifts to ROR, all your worldwide income is taxable in India under Section 5(1). This includes:

• RSU perquisite at vest: taxed as salary at slab rate (Section 17(2))
• Capital gains at sale: LTCG at 12.5% after 24 months (Section 112), STCG at slab rate
• US dividends: taxed as income from other sources (Section 56), with Form 67 credit for US withholding
• US bank interest, rental income, retirement account distributions: all scope of Indian income

The mechanics of RSU taxation for a returning ROR are identical to those for an Indian resident at a US multinational. Read RSU taxation in India: the complete guide for the detailed breakdown of each event, worked examples, and ITR-2 filing schedule.

The DTAA matters here: if the US taxes you on RSU perquisite (which it does for US residents), and India also taxes you as a returning ROR, you claim a Foreign Tax Credit for the US taxes via Form 67 in your Indian ITR-2. Double taxation is addressed by the treaty — not by ignoring one country's claim.

A note on Indian employers paying US RSU perquisites

A distinct situation: some Indian employees receive RSUs from their Indian employer's parent company (a US-listed entity), and the perquisite is paid through the Indian employer's payroll. In this case, the employer is an Indian entity, the payment is part of an Indian salary, and the Indian income tax rules apply fully — including TDS by the Indian employer under Section 192, regardless of your residential status. The perquisite accrues from an Indian employer relationship even if the underlying shares are US-listed.

If this describes your situation, you are not in the "NRI with US employer RSUs" category. Your employer's payroll team is the right first call.

Summary: the NRI RSU tax answer by status

Residential status	RSU perquisite at vest	Capital gains at sale	Schedule FA required
NR (working abroad, US employer)	Not taxable in India	Not taxable in India	Only if filing ITR-2
RNOR (recently returned, RNOR window)	Not taxable in India (foreign income)	Not taxable in India (foreign income)	Yes, if filing ITR-2
ROR (settled resident)	Taxable at slab rate	LTCG 12.5% / STCG slab rate	Yes, always

The closing read

If you are an NRI working abroad with RSUs from a US employer, India's tax claim on those RSUs is generally zero. The perquisite accrued abroad. The gains arise abroad. Section 5(2) limits India's jurisdiction to Indian-source income, and your US compensation is not that.

The complexity starts when you return. The RNOR window is valuable — use it deliberately if you have a large RSU holding. And in the year you become ROR, your entire worldwide income is in India's tax net. That is not a surprise you want on March 31.

Schedule FA disclosure, if you are filing ITR-2 for any reason, is mandatory. The assets are disclosed, not taxed. Do not let the disclosure obligation make you think you owe Indian tax on foreign assets you do not.

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Related reading

• RSU taxation in India: the complete guide with worked examples
• RSU vesting while in US vs India: the residency rules that decide which country taxes you
• Moving back to India with US RSUs: the complete returning NRI playbook
• RSU double-taxation explained: vest, sale, dividend, DTAA, Form 67
• What is Schedule FA and why every RSU holder must file it
• LRS, TCS, Schedule FA: the compliance trifecta for US investors in India
• How to reduce RSU tax in India: five levers that actually work
• ITR-2 walkthrough for RSU holders (AY 2026-27)
• The W-8BEN explained for Indians
• What is the LRS (Liberalised Remittance Scheme)?
• ITR-2 mistakes Indian RSU holders make
• The complete RSU guide for Indians at US multinationals

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This guide reflects the Income Tax Act as amended by the Finance Act 2024 and the Income-tax Act 2025 for applicable provisions. Residential status determination and income attribution involve specific facts that differ case by case. This is not personal tax advice. NRIs with complex situations spanning multiple financial years and two countries should consult a CA with cross-border expertise.