📊 Understanding RSU Taxation in India: A Complete Guide for Employees and Founders
Restricted Stock Units (RSUs) have become an increasingly popular component of compensation in India, especially for employees of MNCs, startups, and tech companies. While they can create long-term wealth, RSUs also come with significant tax implications — often misunderstood or overlooked.
Here’s a clear breakdown of how RSUs are taxed in India and what you need to plan for.
✅ What Are RSUs?
RSUs (Restricted Stock Units) are company shares granted to employees, but with restrictions — typically a vesting schedule. You don’t own the shares outright on the grant date; you own them once they vest over time.
Example:
Suppose a company grants you 1,000 RSUs over 4 years with annual vesting. You’ll get:
- 250 shares in Year 1
- 250 in Year 2
- …and so on
🧾 How Are RSUs Taxed in India?
RSUs are taxed twice in India:
1️⃣ At the Time of Vesting – Taxed as Salary Income
- When RSUs vest, the value of shares is added to your salary income.
- Taxed at your applicable income tax slab rate.
- Employers deduct TDS (Tax Deducted at Source) on the value of RSUs vested.
🧮 Formula:
Taxable Amount = No. of RSUs vested × Fair Market Value (FMV) on vesting date (in INR)
💡 Example:
You vest 100 RSUs. FMV = ₹1,000/share
Taxable income = ₹1,00,000 → added to your salary
TDS = as per slab (e.g., 30% = ₹30,000 deducted)
2️⃣ At the Time of Sale – Capital Gains Tax
When you sell the vested shares, you pay capital gains tax on the profit.
| Holding Period | Tax Type | Rate |
|---|---|---|
| < 24 months (Listed Shares) | Short-Term Capital Gains (STCG) | 15% |
| ≥ 24 months | Long-Term Capital Gains (LTCG) | 10% above ₹1 lakh |
💡 Capital Gain Formula:
Capital Gain = Sale Price – FMV on vesting date
(That FMV becomes your cost of acquisition)
🌍 RSUs from Foreign Companies
If your employer is a foreign company (e.g., Google, Amazon, Meta), RSUs are foreign assets.
- Declare them in Schedule FA of your Income Tax Return (ITR)
- Must be reported even if not sold, once vested
- Failure to report may attract penalties under Black Money Act
📑 Compliance Tips
- ✅ Track vesting dates and FMVs
- ✅ Maintain sale and acquisition records
- ✅ Report foreign RSUs in your ITR (Schedule FA)
- ✅ Consider tax-efficient sale planning to reduce STCG
- ✅ Consult a CA for Double Taxation Avoidance (DTAA) if taxed abroad
🚀 Summary
| Event | Tax Type | Rate |
|---|---|---|
| RSU Vesting | Salary Income | As per income slab (TDS deducted) |
| RSU Sale (<24 months) | STCG | 15% |
| RSU Sale (≥24 months) | LTCG | 10% above ₹1 lakh |
🧠 Final Thoughts
RSUs are a powerful wealth-creation tool, but taxation can erode value if not planned for. Whether you’re a startup employee or part of an MNC, understanding RSU taxation helps you make smarter decisions around when to sell and how to file your returns.