Sell-to-cover for RSUs: how many shares you actually keep (India)

When your RSUs vest, the default method your company uses to handle income tax is sell-to-cover: sell enough shares to pay the TDS, hand you the rest. Most Indian employees have seen this happen without fully understanding how many shares they should have received — and whether the number was right.

This guide explains the mechanics precisely. Use the sell-to-cover simulator to model any vest.

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The three RSU tax withholding methods

Method	How tax is paid	Who it suits
Sell-to-cover	Broker sells shares; proceeds = TDS	Default; no cash needed upfront
Cash settlement	You pay TDS from your bank account	If you want to keep all shares
Same-day sale	All shares sold; you receive INR net of tax	If you don't want the stock at all

Sell-to-cover is the default at most multinational employers.

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The exact calculation

Say 100 RSUs vest when the stock is trading at $150 (USD/INR = 93).

Step 1 — Perquisite value

FMV per share in INR = $150 × 93 = ₹13,950 Total perquisite = 100 shares × ₹13,950 = ₹13,95,000

Acquisition cost for most RSU grants = ₹0 (you paid nothing for the grant).

Step 2 — Tax liability

Assume your marginal slab rate is 30%, with surcharge (if applicable) and 4% cess. Effective rate assuming no surcharge (income below ₹50 lakh): 30% × 1.04 = 31.2%

Tax due = ₹13,95,000 × 31.2% = ₹4,35,240

Step 3 — Shares to sell

Shares sold = Tax due ÷ FMV per share in INR = ₹4,35,240 ÷ ₹13,950 = 31.2 shares → rounded up to 32 shares

Step 4 — Shares you keep

100 − 32 = 68 shares

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The surcharge effect

If your total income (salary + RSU perquisite) exceeds ₹50 lakh, surcharge applies:

Total income	Surcharge	Effective rate
Up to ₹50 lakh	Nil	31.2%
₹50–1 crore	10%	34.32%
₹1–2 crore	15%	35.88%
Above ₹2 crore	25% (new regime) / 37% (old regime)	up to 39%

At a 34.32% effective rate on the same 100-share vest at $150:

• Tax = ₹13,95,000 × 34.32% = ₹4,78,764
• Shares sold = ₹4,78,764 ÷ ₹13,950 = 34.3 → 35 shares
• Shares kept = 65 shares

The higher your income, the more shares get sold. At ₹2 crore+ income, you may keep only 60–61 shares from every 100 that vest.

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What "effective tax rate" your employer uses

Your employer typically withholds TDS based on your estimated annual tax rate for the year — calculated from your salary, expected RSU vests, and other income declared in your investment declaration at the start of the year.

If you declared a lower investment or your vest timing was different from what was projected, the withholding rate may be slightly off. You true it up at ITR filing.

Key point: If your employer withholds at a lower rate and you owe more at ITR time, you'll need to pay interest under Section 234B/234C. If they over-withhold, you get a refund — but you also lose the use of that money until refund arrives.

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After the vest: what you own

The 68 shares you retained have a cost of acquisition = ₹13,950 per share (the FMV on vest date — the same value that was taxed as perquisite). This becomes your capital gains basis.

When you eventually sell:

• Within 24 months of vest: STCG at your slab rate on (sale price in INR − ₹13,950)
• After 24 months: LTCG at 12.5% on (sale price in INR − ₹13,950), no indexation

The gain/loss is computed in rupees — a weaker rupee at sale means a larger reported gain in INR even if the dollar price is flat.

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Scenarios: if the stock moves after your vest

Using the sell-to-cover simulator, you can model what your 68 retained shares are worth under different stock price scenarios over the next 12 months:

Stock in 12 months	Value of 68 shares at $150 vest (USD/INR 93)
$150 (flat)	₹9,48,600
$180 (+20%)	₹11,38,320
$120 (−20%)	₹7,58,880

The simulator also shows the capital gain and estimated tax if you sell at each price point.

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Common mistakes

1. Assuming "net shares = shares vested × (1 − tax rate)" Wrong because surcharge and cess push the effective rate above 30%, and rounding up means you always sell slightly more than the exact fraction.

2. Forgetting to check if the correct TDS rate was used If your employer used your prior year's rate or an outdated declaration, the withholding may be off. Review Form 26AS after each vest to confirm TDS matches your expectation.

3. Not filing Schedule FA Even after the sell-to-cover, if you hold any shares in your US brokerage account, you must file Schedule FA disclosing those shares every financial year.

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The one-line version

At a 31.2% effective rate, 100 vested RSUs become ≈68 shares after sell-to-cover. At 34.32% (surcharge), it's ≈65. Use the sell-to-cover simulator for your exact vest, rate, and stock price.