RSUs (Restricted Stock Units) are a promise to give an employee company shares once they meet a condition, usually staying for a set period. Unlike an ESOP, there is no exercise price to pay, so the full market value of each share on the day it is delivered is taxed as salary.

Where Indian employees meet RSUs

Most RSUs held in India come from foreign parent companies, typically US-listed, granting shares to staff of their Indian subsidiary. The parent’s plan sets the vesting schedule, and the shares sit with an overseas broker. Some Indian listed companies also use the label, but under Indian company law these are usually structured as options with a nominal exercise price, so the ESOP rules apply to them.

Tax and payroll treatment

On vesting and transfer, the value is a perquisite: the stock-options clause in Section 17 of both Acts, that is 17(2)(vi) for FY 2025-26 and 17(1)(d) under the new law from tax year 2026-27. The Indian employer adds it to salary and deducts tax. Because the employee receives shares, not cash, the plan usually sells part of the vested lot (“sell to cover”) or the payroll team recovers the tax from cash salary.

Example: 100 RSUs vest when the share trades at USD 50. At an illustrative rate of Rs 85 per dollar, the perquisite is 100 x 50 x 85 = Rs 4,25,000. At the 30% slab plus 4% cess (31.2%), the tax is Rs 1,32,600, so the broker might sell 32 shares (Rs 1,36,000) and deliver 68. Use the exchange rate the valuation rules prescribe, not the one in this example.

When the shares are later sold, the vesting-date value becomes the cost. Foreign shares are not listed on an Indian exchange, so they turn long-term only after 24 months and long-term gains are taxed at 12.5%; short-term gains go at slab rates.

Frequently asked questions

Do I need to report foreign RSUs in my return?

Yes, if you are resident and ordinarily resident. Vested shares held abroad go in Schedule FA every year you hold them, using the calendar year, even if nothing was sold, and dividends must be reported too. Cross-check what the employer reported in Form 16 and your AIS before filing.

Are unvested RSUs taxable?

No. Nothing is taxed or reported until the units vest and shares are transferred to you.

Can a startup-style tax deferral apply to RSUs?

Deferral is available only where the employer itself is an eligible Indian startup, which a foreign parent’s plan for its subsidiary staff will not usually meet.

What happens to RSUs when an employee resigns?

Unvested units normally lapse on the last working day under the parent’s plan, so check the plan rules alongside the full and final settlement.

The salary TDS calculator shows how a vesting month pushes up monthly withholding.