RSU taxation in India: the complete guide with worked examples

Priya got her first batch of RSUs: 100 shares of her US employer's stock, vesting on a single date. The offer letter showed a figure in US dollars. On vest day, the broker sent a confirmation: 70 shares deposited, 30 shares sold. The employer had withheld tax. By the time she sat with her CA the following March, she had a vest confirmation, a sell-to-cover report, a Form 16 showing a perquisite, and a question she could not answer: why did she pay tax at vesting when she had not sold anything?

This guide answers that question precisely. Two taxable events govern RSU taxation in India. Understanding each one, how it is calculated, and what it means for ITR-2 filing is the foundation for every other RSU financial decision.

The 30-second answer: RSUs in India trigger two separate taxable events. At vest: the INR value of shares on vest day (FMV in USD × SBI TTBR × shares vested) is treated as a salary perquisite under Section 17(2) and taxed at your marginal slab rate, typically 30% for employees at US multinationals. Your employer deducts this TDS upfront, often by selling shares to cover the liability. At sale: the gain between your INR sale proceeds and your vest-day INR cost basis is a capital gain. If you held the shares more than 24 months from vest, it is long-term capital gain taxed at 12.5% without indexation under Section 112. If held 24 months or less, it is short-term and taxed at slab rate. The Rs 1.25 lakh LTCG exemption under Section 112A does not apply to US shares. There is no double taxation if cost basis is tracked correctly.

Related: The complete RSU guide for Indians at US multinationals covers the full grant-to-sale lifecycle if you want the broader picture first.

This guide focuses specifically on the tax events: how each one is calculated, what rate applies, and where each number lands in ITR-2.

The structure: two taxable events, two different rate schedules

Most financial decisions around RSUs hinge on one misunderstood fact: RSUs are not taxed once. They are taxed twice, on two different bases, under two different sections of the Income Tax Act, at two different rates.

Event 1: Vest day. The market value of your shares on the vest date is treated as salary income. You pay income tax at your slab rate. This is true whether you sell on vest day or hold the shares for five years. Tax has already been paid.

Event 2: Sale day. The gain between what the shares were worth when you sell them (in INR) and what they were worth when they vested (in INR) is a capital gain. A different section applies, a different rate applies, and the holding period from vest to sale determines whether it is short-term or long-term.

The reason the system does not amount to double taxation is that the cost basis for Event 2 is the same value that was taxed in Event 1. The same rupees are not taxed twice. But two different tax events on two different bases is not the same as no tax complexity.

Event 1: perquisite tax at vesting (Section 17(2))

When your RSUs vest, the income tax department treats the vest-day value as compensation for services rendered. Legally, it is a perquisite under Section 17(2)(vi) of the Income Tax Act, which covers perquisites in the form of shares, debentures, or warrants allotted to an employee.

How the perquisite value is calculated

The perquisite value is:

Perquisite = Number of shares vested × FMV on vest date (USD) × SBI TTBR on vest date

The FMV is the closing price of the stock on the US exchange on the vest date. The conversion rate is the SBI Telegraphic Transfer Buying Rate (TTBR) prescribed under Rule 26 of the Income Tax Rules. You use the TTBR published by State Bank of India on the vest date, not any bank's rate you happen to use for remittances.

What rate applies

The perquisite is added to your total salary income and taxed at your marginal slab rate. Under the new tax regime (the default from FY 2023-24 onwards), the 30% slab applies above Rs 24 lakh. Under the old regime, it applies above Rs 10 lakh.

At most US multinationals, employees vesting even a single moderate lot of RSUs will find the perquisite value pushes their total income into the 30% slab, regardless of which regime they are in. For planning purposes, assume 30% plus 4% health and education cess, giving an effective rate of 31.2% on the perquisite.

How TDS works at vest

Your employer (the Indian entity paying your salary) is required to deduct TDS under Section 192 on the perquisite value, in addition to TDS on your regular salary. The TDS is at the average rate of income tax on your estimated total income for the year.

In practice, this happens one of two ways. The more common is sell-to-cover: the broker sells enough of your vested shares on vest day to fund the TDS liability, and only the remaining shares are deposited into your account. The less common option is cash offset: the employer increases TDS on your monthly salary to absorb the RSU perquisite tax over the year.

In Priya's case, 30 shares were sold on vest day to cover her TDS liability. She received 70 shares.

The cost basis consequence

The most important thing to remember from Event 1: the INR value taxed as perquisite becomes your cost basis for the capital gains calculation at Event 2. If your vest-day perquisite value was Rs 35 lakh and your employer correctly included it in Form 16, your capital gains base is Rs 35 lakh (prorated per share). This number is not zero.

Worked example: Priya's January 2026 vest

Priya vests 100 RSUs on January 15, 2026.

• Stock closing price on January 15: USD 420
• SBI TTBR on January 15: Rs 84.20 per USD
• Perquisite value per share: USD 420 × Rs 84.20 = Rs 35,364
• Total perquisite value: 100 × Rs 35,364 = Rs 35,36,400

Her total salary income for FY 2025-26, including this perquisite, is Rs 58 lakh. She is in the 30% slab.

• Perquisite tax: Rs 35,36,400 × 30% = Rs 10,60,920
• Plus 4% cess: Rs 10,60,920 × 1.04 = Rs 11,03,357

The employer arranges a sell-to-cover. At the vest-day price of USD 420 × Rs 84.20 = Rs 35,364 per share:

• Shares to sell = Rs 10,60,920 / Rs 35,364 = approximately 30 shares
• Net shares deposited: 70 shares

Priya's cost basis for those 70 shares: 70 × Rs 35,364 = Rs 24,75,480 (Rs 35,364 per share).

This cost basis is locked to the vest date. It does not change based on what the stock does after vest.

Event 2: capital gains at sale (Section 112)

When Priya eventually sells those 70 shares, the gain between the INR sale proceeds and her INR cost basis is a capital gain. The applicable tax section depends on how long she held the shares from vest to sale.

The 24-month threshold

US-listed shares are treated as unlisted foreign securities for Indian capital gains purposes. They are listed on NYSE or NASDAQ, but those are not SEBI-recognised exchanges. Under Indian law, the holding period for long-term status on unlisted securities is 24 months (two years). If you sell within 24 months of vest, the gain is short-term. If you sell after 24 months from vest, the gain is long-term.

This 24-month threshold is a frequent confusion point. It is not 12 months (that applies to Indian-listed equity). It is not 36 months (that applied to debt instruments pre-2023). For US RSUs: 24 months from the vest date.

The holding period runs from the vest date, not the grant date. A grant made four years ago with quarterly vesting: each quarterly vest lot starts its own 24-month clock on its own vest date.

LTCG: 12.5% without indexation (Finance Act 2024)

If the holding period exceeds 24 months, the gain is a long-term capital gain taxed at 12.5% without indexation under Section 112(1)(c), as amended by the Finance Act 2024 (effective from July 23, 2024). Before Budget 2024, LTCG on foreign shares was taxed at 20% with indexation — the 2024 amendment removed indexation and lowered the rate.

The Rs 1.25 lakh annual exemption under Section 112A does not apply here. That exemption applies to Indian-listed equity (with STT paid). US RSUs fall under Section 112, not Section 112A. There is no annual exemption on LTCG from US RSU sales.

STCG: slab rate

If the holding period is 24 months or less, the gain is short-term and taxed at your marginal income tax slab rate. For most tech workers: 30%. Section 111A (the 15% STCG rate) does not apply to US stocks — it applies only to equity shares or equity mutual fund units where STT has been paid on a recognised Indian exchange.

How the gain is calculated

Capital gain = Sale proceeds (INR) minus Cost basis (INR)

Both figures must be in INR. The sale proceeds convert at the SBI TTBR for the last day of the month immediately preceding the month of sale (Rule 115). The cost basis is the vest-day perquisite value already established.

The practical consequence: if the rupee depreciates between vest and sale, your INR gain will be larger than your USD gain. You can have a flat stock price and still have an INR capital gain purely from currency movement. This is mechanical — the capital gain is computed in rupees, not in dollars.

LTCG vs STCG: the worked example

Priya has 70 shares with a cost basis of Rs 35,364 per share (Rs 24,75,480 total).

Scenario A: She sells at 18 months (STCG)

• Sale date: July 2027, stock at USD 500, TTBR Rs 86.00
• Sale proceeds per share: USD 500 × Rs 86.00 = Rs 43,000
• Total sale proceeds: 70 × Rs 43,000 = Rs 30,10,000
• Capital gain: Rs 30,10,000 minus Rs 24,75,480 = Rs 5,34,520
• STCG tax at 30%: Rs 1,60,356

Scenario B: She waits until 26 months and sells at the same price

• Sale date: March 2028, stock still at USD 500, TTBR Rs 86.00
• Sale proceeds: Rs 30,10,000 (same)
• Capital gain: Rs 5,34,520 (same)
• LTCG tax at 12.5%: Rs 66,815

Tax saving from holding an extra 8 months: Rs 1,60,356 minus Rs 66,815 = Rs 93,541.

On a 70-share lot, holding 8 additional months saves roughly Rs 94,000 in tax. The trade-off is stock price risk during the hold period. This is the central RSU tax decision for Indian residents: it is not whether to sell but when, relative to the 24-month line.

Event 3: dividends (Section 56)

If the company pays dividends while you hold the shares, the INR equivalent of each USD dividend is taxed as income from other sources under Section 56 of the Income Tax Act, at your slab rate.

The US side withholds 25% on dividends under India-US DTAA Article 10 (the rate for Indian retail investors without US residency). This US withholding is a creditable tax: you claim it against your Indian tax liability on the same dividend income via Form 67 (for AY 2026-27 filings). Without Form 67, the US withholding is not credited and you end up paying both US withholding and full Indian slab tax on the same dividend rupees.

For most RSU holders, dividends are a secondary concern. The perquisite and capital gains events are where the material tax amounts sit.

RSU tax rates at a glance

Event	Section	Tax rate	Notes
Vest (perquisite)	S.17(2)	Slab rate (typically 30%)	TDS deducted by employer
Sale within 24 months (STCG)	S.111A does not apply; residual	Slab rate (typically 30%)
Sale after 24 months (LTCG)	S.112(1)(c)	12.5% (no indexation)	Finance Act 2024, post July 23 2024
Dividend	S.56	Slab rate	Credit US 25% withholding via Form 67

What goes where in ITR-2

RSUs require four schedules in ITR-2:

Schedule S (Salary): The perquisite value appears here, as shown in Form 16. Do not manually add it if your employer has already included it — Form 16 Part B is the authoritative source.

Schedule CG (Capital Gains): Report each sale under "Capital gains from transfer of foreign assets." Use the correct subsection: LTCG under Section 112 (not 112A), STCG under the residual short-term head. State cost basis, sale proceeds, and gain per lot.

Schedule FA (Foreign Assets): Disclose every RSU lot held as at December 31 of the calendar year (Table A3 for foreign equity). This applies whether or not you sold anything. Value as at December 31 using TTBR.

Form 67: File this before ITR-2 if you received dividends and had US withholding. CPC routinely disallows the foreign tax credit if Form 67 is missing, even if Schedule TR is correctly populated inside the return.

The ITR-2 walkthrough for RSU holders covers the exact field-by-field steps for each schedule.

Common mistakes that cost money

Wrong cost basis. The most expensive error: filing capital gain at the full sale value with a zero cost basis, paying 30% (or 12.5%) on rupees already taxed as perquisite. Cost basis is not zero. It is the vest-day INR perquisite value per share.

Wrong TTBR. Using the TT-selling rate instead of the TT-buying rate, or using a bank other than SBI. Rule 26 specifies SBI TTBR. Using the wrong rate shifts your cost basis and distorts every capital gains calculation.

Applying the Rs 1.25 lakh exemption to US shares. Section 112A exemption applies to Indian-listed equity with STT. US RSU gains fall under Section 112. There is no per-year exemption on these gains.

Confusing the 24-month clock. The clock starts at vest, not at grant. A four-year grant vesting quarterly has four vest dates per year, each starting its own separate clock. Lot-level tracking matters.

Missing Form 67 for dividends. Without Form 67 filed on or before ITR-2 due date, the US withholding credit is disallowed. You then pay full Indian slab tax on the dividend with no offset.

A full list of filing traps is in ITR-2 mistakes Indian RSU holders make.

The closing read

RSU taxation in India is not complicated once you see the architecture. Vest day creates salary income — taxed at slab, nothing you can do about it. Sale day creates a capital gain on the increment from vest price — taxed at 12.5% if you held 24 months, at 30% if you did not. The cost basis bridge between the two events is what prevents double taxation, but only if you and your CA track it correctly.

Three things move the needle: hold for 24 months to access the LTCG rate; never file with a zero cost basis; file Form 67 if you have dividends. Everything else is optimisation.

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Related reading

• RSU double-taxation explained: vest, sale, dividend, DTAA, Form 67
• RSU vesting: the real tax math for Indian residents
• How to reduce RSU tax in India: the five levers
• RSU lot selection and loss harvesting: the tax tools your CA is not using
• Section 112 vs Section 111A for US stocks: the most expensive ITR-2 mistake explained
• ITR-2 walkthrough for RSU holders (AY 2026-27)
• From vest to ITR-2: the complete 12-step workflow
• ITR-2 mistakes Indian RSU holders make
• What is Schedule FA and why every RSU holder must file it
• The W-8BEN explained for Indians
• Sell-to-cover vs sell-all vs hold: the RSU decision framework
• Should you sell RSUs at vest or hold them?
• RSU tax for NRI: what Indian tax do you actually owe?
• 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, applicable to transfers on or after July 23, 2024, and is written for AY 2026-27 filings. Tax law changes frequently. This is not personal tax advice. Consult a CA familiar with cross-border equity compensation before filing.