RSU vesting: the real tax math for Indian residents

Your offer letter says you're getting $50,000 in RSUs vesting over four years. That sounds clean. It isn't.

Between the day those RSUs vest and the day rupees actually hit your bank account, three different tax events happen. Most people only know about one.

This post walks through all three for an Indian resident at a US multinational. For the full grant-to-sale picture, see our RSU and ESPP tax pillar.

Event 1: vesting (perquisite tax)

The day your RSUs vest, the fair market value of those shares is treated as salary income in India. Your employer adds it to your payslip as a "perquisite" and you owe tax on the entire vested value at your marginal slab.

Walk through a single tranche:

• 25 shares vest at $200/share = $5,000.
• USD/INR is 92 — vest value = 4,60,000.
• You're in the 30% slab with 15% surcharge and 4% cess — effective rate approximately 35.88%.
• Perquisite tax owed: 1,65,048.

Use the RSU Calculator to plug in your own numbers.

How does your employer collect this? They sell some of the shares to cover it — the sell-to-cover mechanism. Typically they sell roughly 30-35% of the shares at market price on vest day, send INR equivalent to the tax authority, and deposit the remaining shares in your brokerage account.

Sell-to-cover happens at market price on the day of vest. If the stock drops 10% the next week, you've still paid tax on the higher price. There's no refund for that.

Event 2: US dividend withholding (if you hold)

If you keep the shares and they pay dividends, the US withholds 25% under the US-India treaty (assuming you've filed a W-8BEN with your broker). The mechanics of US dividend withholding and the Form 67 credit are worth reading in full if you hold dividend-paying shares.

The 25% withholding is a foreign tax credit you can claim in India by filing Form 67 before your ITR (Form 67 is renumbered Form 44 from TY2026-27). If you don't file Form 67 in time, you lose the credit and you've effectively been double-taxed on those dividends.

Event 3: capital gains when you sell

Eventually you sell the shares. The gain (or loss) is computed in INR:

• Cost basis = the FMV on vest day x USD/INR rate on vest day. (You already paid perquisite tax on this — it does not get taxed again.)
• Sale proceeds = sale price x USD/INR rate on sale day.
• Capital gain = proceeds minus cost basis.

Tax treatment depends on the holding period from the vest date (not the grant date):

• 24 months or fewer: short-term capital gain, taxed at your slab.
• More than 24 months: long-term capital gain at 12.5% (no indexation, post Budget 2024) plus surcharge and cess.

Two things often surprise people:

1. The 24-month threshold (vs. 12 months for Indian listed shares).
2. The currency leg: if the stock is flat in USD but the rupee depreciates, you have an INR gain that's taxable. Currency moves are baked into the math.

A worked end-to-end example

Same 25-share tranche from above. Suppose you hold for 30 months and sell at $260/share, with USD/INR at 96 on sale day.

Event	Amount (INR)	Notes
Vest value (gross)	4,60,000	25 x $200 x 92
Perquisite tax at 35.88%	-1,65,048	Sell-to-cover
Net shares retained	approx 16 shares	After approx 9 sold for tax
Sale proceeds (16 x $260 x 96)	3,99,360
Cost basis (16 x $200 x 92)	2,94,400	What you already paid tax on
LTCG	1,04,960
LTCG tax at 12.5% plus cess	approx 13,645
Net rupees from this tranche	approx 3,85,715

The headline "$5,000 vesting" turned into roughly 3.86 lakh in your hand — about 84% of the gross vest value, after a 30% gain in the underlying stock. Most of the leakage is the perquisite tax at vest, not the capital gains tax.

Multi-tranche quarterly vesting: tracking a 4-year grant

Most US grants vest over 4 years with a 1-year cliff and quarterly vesting thereafter. A $50,000 grant at 100 shares means 25 shares at the 12-month cliff, then roughly 6-7 shares per quarter for 12 more quarters.

For simplicity, assume 25 shares per quarter. Here is how the perquisite tax events stack up over Year 1 after the cliff:

Vest Date	Shares	USD FMV	INR Rate	Perquisite Value	Tax at 35.88%
Q1 (Mar)	25	$200	92	4,60,000	1,65,048
Q2 (Jun)	25	$210	93	4,88,250	1,75,225
Q3 (Sep)	25	$205	94	4,81,750	1,72,892
Q4 (Dec)	25	$215	94	5,05,250	1,81,323
Year total	100			19,35,250	6,94,488

Each quarter is a separate perquisite event. Your employer's payroll adds each vest to the corresponding month's salary, runs TDS, and reports it in Form 24Q. By year-end your Form 16 Part B will show the total perquisite under "Perquisites valued as per rules."

Advance tax implications of quarterly perquisites

Each quarterly vest spikes your TDS for that month. Your employer should adjust TDS for the full year's projection, but mid-year vests can throw off the calculation. The advance tax deadlines are:

Due date	Advance tax to be paid
June 15	15% of estimated annual tax
September 15	45% cumulative
December 15	75% cumulative
March 15	100% cumulative

If you receive a large Q2 vest (June) but your employer doesn't adjust TDS in time, you may need to self-pay advance tax by September 15 to avoid interest under Section 234B and 234C. Check your Form 26AS after each vest to verify TDS is being deposited correctly.

Form 12BA verification steps

Form 12BA is issued by your employer alongside Form 16 Part B and details all perquisites. For RSU perquisites, verify:

1. The "Perquisites" section should show "Value of perquisites under Section 17(2)" — the gross vest-date FMV for each vest during the year.
2. The amount in Form 12BA should exactly match the perquisite line in Form 16 Part B Schedule 1.
3. If your employer's payroll system calculates using the wrong exchange rate, Form 12BA will be wrong. Cross-check against: (shares vested x USD FMV x SBI TTBR on vest date) for each quarter.

If there's a discrepancy, contact payroll before filing ITR-2. A mismatch between Form 12BA and your own calculation needs to be resolved at source.

The currency effect: INR gains even when USD price is flat

This is the most under-appreciated mechanic. Consider:

• Vest: 25 shares at $200, USD/INR = 85 — cost basis per share = 17,000
• Sale 30 months later: same $200/share, but USD/INR = 92

	USD	INR
Vest price	$200	17,000
Sale price	$200 (flat)	18,400
Gain	zero	1,400 per share

25 shares retained — 35,000 LTCG even though the stock did not move in USD. At 12.5% plus cess, that is roughly 4,550 in LTCG tax on what appeared to be a flat position.

The reverse is also true: if the rupee appreciates (USD/INR falls), a stock that rose in USD might show a smaller or even negative INR gain.

A rupee depreciation of 5-8% per year historically has added meaningful INR gains even on flat USD positions. Factor currency direction into your hold/sell decision.

Full 4-year vest cycle: LTCG on early lots

By Year 3 of a 4-year grant, the Year 1 cliff lot is over 24 months old and qualifies for LTCG. The tax treatment evolves across the grant:

Lot	Vest Date	Held Until	Holding Period	Tax Rate
Cliff (Year 1 Q1)	Mar 2023	Jun 2025	27 months	LTCG 12.5%
Year 1 Q2	Jun 2023	Jun 2025	24 months	LTCG 12.5%
Year 1 Q3	Sep 2023	Jun 2025	21 months	STCG (slab)
Year 1 Q4	Dec 2023	Jun 2025	18 months	STCG (slab)
Year 2 Q1	Mar 2024	Jun 2025	15 months	STCG (slab)

For a 5 lakh gain, the difference between STCG (31.2%) and LTCG (13%) is roughly 91,000 in tax. A few months of patience on the earliest lots can be worthwhile.

Sell-at-vest vs hold: the INR comparison

Strategy	Perquisite tax	Capital gains tax	Currency risk	Net outcome
Sell at vest (same day)	35.88% on full value	Zero (no gain on same-day sale)	None	Simplest; locks in current INR value
Hold under 24 months, sell	35.88% at vest	STCG at slab (up to 30%)	USD/INR movement captured	Higher total tax if stock rises
Hold 24-plus months, sell	35.88% at vest	LTCG at 12.5%	INR depreciation works in your favour	Lowest tax on gains; concentrated stock risk

The dominant factor is the perquisite tax, which you pay regardless. The capital gains tax on post-vest appreciation is far smaller. The LTCG saving of 17-18 percentage points matters most when the post-vest gain is large (30% or more appreciation post-vest).

What this means in practice

A few takeaways that fall out of this math:

• Don't treat unvested RSUs as cash. They're a leveraged, single-stock, dollar-denominated bet that you'll be partially forced to liquidate at vest.
• The perquisite tax dominates. If you're going to optimize anything, optimize when you sell (capital gains decisions) — not whether to "avoid" the perquisite tax. You can't avoid it.
• File Form 67 if you hold for dividends. Otherwise the 25% US withholding is just gone.
• Track your cost basis in INR per tranche. When you sell, the broker reports USD numbers; the Indian tax filing needs INR. Keep a spreadsheet.
• Watch the 24-month clock on early lots. The cliff vest starts the LTCG clock first — if you're going to hold any lot, hold that one longest.
• Account for rupee depreciation. A flat USD stock is not a flat INR investment.

The concentration risk you're not thinking about

Perquisite tax math is one half of the RSU picture. The other half is what you now have on your hands: a concentrated, single-stock position in a company you also work for. If the stock falls, your shares lose value and your job security potentially weakens at the same time — two correlated risks that compound.

Most financial advisors recommend a target of no more than 10–15% of your investable net worth in any single stock. For Indian tech employees with multiple years of unvested grants and several years of accumulated vested shares, the single-stock weight frequently exceeds 40–60% of total financial assets. That is not diversification — it is a leveraged bet on one company.

The diversification question — whether to sell RSU shares at vest or hold — is the most under-discussed RSU decision. The tax math above shows you what you pay. The portfolio math shows you what you risk.

For the full hold-vs-sell framework: Should you sell RSUs at vest or hold? A decision framework for Indian residents.

Related reading

• Should you sell RSUs at vest or hold? — the concentration risk and sell discipline framework
• RSU double-taxation: the three events explained — why RSU perquisite and capital gains are both taxed, and why that's correct
• Advance tax quarterly calendar for RSU holders — how to pay advance tax correctly around vest events
• Schedule FA for AY 2026-27: step-by-step — disclosing your vested RSU shares as foreign assets
• Form 67 step-by-step — claiming US dividend withholding as a foreign tax credit

This article is general information, not personalised tax advice. Tax rates, thresholds, and withholding mechanics described are as of AY 2026-27 and can change. Consult a CA who understands cross-border equity compensation before filing.