Perquisite Tax at Vesting
RSU FMV at vesting is treated as salary income (perquisite) under Section 17(2) of the IT Act
Perquisite Tax Results
📊 RSU Value Breakdown at Vesting
RSU Taxation in India: The Complete Guide (FY 2024-25)
Restricted Stock Units (RSUs) are one of the most popular forms of equity compensation offered by technology companies like Google, Microsoft, Amazon, Meta, and Flipkart to their Indian employees. While RSUs sound simple — you receive company stock for free — the tax treatment in India is surprisingly complex, operating across two distinct taxable events with different rules, rates, and compliance requirements.
This guide covers everything an Indian employee needs to know about RSU taxation for Financial Year 2024-25, incorporating the important changes introduced by the Finance Act 2024.
Perquisite Tax on RSUs: How It Works
Under Section 17(2)(vi) of the Income Tax Act, when an RSU vests and you receive the actual shares, the Fair Market Value (FMV) of those shares on the date of vesting is treated as a perquisite — essentially a benefit received from your employer — and taxed as part of your salary income.
Employer's TDS Obligation
Your employer is legally required to deduct TDS on the perquisite value under Section 192. Most large MNCs operating in India (Google India, Microsoft India, Amazon India) automatically deduct TDS at 30% (the highest rate) at the time of vesting to avoid any under-deduction risk. If you fall in a lower slab, you can claim a refund when filing your ITR.
The perquisite value and TDS deducted will appear in Part B of your Form 16. Look for "Perquisite u/s 17(2)" in the salary breakup — this is your RSU income.
New Tax Regime Slabs (FY 2024-25)
Under the new default tax regime, the slabs are: ₹0–3L at 0%, ₹3–7L at 5%, ₹7–10L at 10%, ₹10–12L at 15%, ₹12–15L at 20%, and above ₹15L at 30%. Surcharge applies at 10% if total income exceeds ₹50L, and 15% if it exceeds ₹1Cr.
Capital Gains Tax When You Sell RSUs
After vesting, your RSU shares are treated like any other investment. When you eventually sell them, the gain is subject to Capital Gains Tax. The key distinction is the holding period and the nature of the asset.
For Indian tax purposes, shares of foreign companies listed on foreign exchanges (e.g., Google on NASDAQ, Microsoft on NASDAQ) are treated as unlisted securities — not listed equity shares. This means the favorable 10% LTCG rate for listed Indian equity does not apply.
DTAA Benefit: Avoiding Double Taxation on US Stock
Under the India-USA Double Taxation Avoidance Agreement (DTAA), you can claim a Foreign Tax Credit (FTC) in India for taxes paid in the US on the same income. This is particularly relevant when US brokerages withhold US taxes on capital gains from RSU sales.
To claim FTC, you must file Form 67 on the income tax portal before submitting your ITR. The foreign tax credit is capped at the Indian tax payable on that specific income — so if you paid 24% US federal tax but owe only 12.5% LTCG in India, your credit is limited to 12.5%.
Note: Most Indian-resident employees working in India for Indian subsidiaries (Google India Pvt Ltd, Microsoft India, etc.) do not have US tax withheld on RSU sales unless they previously worked in the US or hold US brokerage accounts. Verify this with your tax advisor.
RSU Tax Planning Tips for India Employees
- Track every vest: Maintain a detailed record of vest date, FMV in USD, FX rate used, and TDS deducted for each vesting event. This is critical for calculating capital gains cost basis.
- Wait for LTCG if close to 24 months: The difference between slab-rate STCG (up to 30%) and 12.5% LTCG is substantial. If you're holding shares close to the 24-month mark, it may be worth waiting before selling.
- Check Form 16 carefully: Ensure the perquisite value and FX rate in your Form 16 matches what was actually vested. Discrepancies can lead to tax notices.
- File Form 67 for DTAA: If any US taxes were withheld, file Form 67 on the income tax portal before submitting your ITR to claim the foreign tax credit.
- Consider ESPP vs RSU timing: If you also hold ESPP shares, coordinate selling RSU and ESPP shares to optimize capital gains — especially to avoid bunching large gains in a single year that pushes you into a higher slab.
- Advance tax: If your additional tax liability after TDS exceeds ₹10,000, you must pay advance tax in quarterly instalments to avoid interest under Sections 234B and 234C.
RSU vs ESOP: Tax Treatment Comparison
| Aspect | RSU | ESOP |
|---|---|---|
| Taxable event 1 | At vesting (FMV as perquisite) | At exercise (FMV minus exercise price as perquisite) |
| Taxable event 2 | At sale (capital gains on gain over FMV at vest) | At sale (capital gains on gain over FMV at exercise) |
| Cost to employee | Zero (free shares) | Exercise price (strike price) |
| Perquisite = | FMV at vest × units | (FMV − Exercise price) × units exercised |
| ESOP startup deferral | Not applicable | Eligible startups: TDS deferred to sale / 5 years (Section 192(1C)) |
| Holding period (LTCG) | 24 months from vest | 24 months from exercise (for unlisted cos.) |
| LTCG rate (foreign listed) | 12.5% without indexation | 12.5% without indexation |
| Upside risk | Lower (already taxed on full FMV) | Higher if stock falls below exercise price |
Frequently Asked Questions
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Related Calculators
📌 Vesting Summary
💡 Tax Tips
Advance Tax: If tax liability after TDS > ₹10,000, pay advance tax by March 15 to avoid interest u/s 234B/234C.
Form 67: File before ITR submission to claim DTAA foreign tax credit on US-taxed income.
LTCG Threshold: Hold RSUs for 24+ months from vest date to qualify for 12.5% LTCG instead of 30% STCG.
Schedule FA: Foreign assets (RSU shares held in US brokerage) must be declared in Schedule FA of your ITR. Failure attracts ₹10L penalty under FEMA/Black Money Act.