Restricted Stock Units (RSUs) have become a common form of employee compensation, especially among multinational companies. While RSUs offer an opportunity to build wealth, they also come with tax implications that employees in India must understand. In this blog, we will explore how RSUs are taxed in India, the impact of cross-border taxation, and ways to minimize tax liability.

What Are RSUs?

RSUs are a type of stock-based compensation where an employer grants company shares to an employee. However, these shares are not immediately owned by the employee—they vest over a period of time, usually subject to continued employment or performance targets. Once vested, the employee gains full ownership of the shares, which can be sold or held for future gains.

When Are RSUs Taxed in India?

In India, RSU taxation happens in two stages:

1. Tax at Vesting (Treated as Salary Income)

• The value of RSU taxation in India on the vesting date is treated as perquisite income under "Income from Salary."
• The Fair Market Value (FMV) of the shares on the vesting date is considered for taxation.
• The employer deducts Tax Deducted at Source (TDS) based on the employee’s income tax slab.
• Since RSUs are part of salary, they attract up to 30% tax (plus surcharge and cess) for high-income individuals.

2. Tax at Sale (Capital Gains Taxation)

Once the RSUs are vested, employees can hold or sell them. When sold, capital gains tax applies based on the holding period.

For Listed Shares (Indian or Foreign Stock Listed in Recognized Exchanges)

• Short-Term Capital Gains (STCG):
  • If sold within 12 months of vesting → 15% tax (plus applicable cess and surcharge).
• Long-Term Capital Gains (LTCG):
  • If sold after 12 months, gains exceeding ₹1 lakh are taxed at 10% (without indexation).

For Unlisted Shares (Stock Not Listed in India)

• Short-Term Capital Gains:
  • If sold within 24 months, gains are taxed as per the individual’s income tax slab.
• Long-Term Capital Gains:
  • If sold after 24 months, gains are taxed at 20% with indexation benefits.

Double Taxation for Foreign RSUs

Employees receiving RSUs from foreign employers may face double taxation—once in India and again in the country where the shares are issued. However, relief under the Double Taxation Avoidance Agreement (DTAA) allows employees to claim foreign tax credits for taxes paid abroad.

How to Reduce RSU Tax Liability?

1. Time Your Sale Wisely – Holding RSUs for over 12 months (for listed shares) helps qualify for lower LTCG tax rates.
2. Offset Gains with Losses – If you have capital losses from other investments, use them to offset taxable RSU gains.
3. Check DTAA Benefits – Claim foreign tax credits to avoid double taxation.
4. Invest Tax-Efficiently – Reinvest proceeds into tax-saving instruments like ELSS or NPS to optimize deductions under the Income Tax Act.

Conclusion

Understanding RSU taxation in India is crucial for effective tax planning. Employees should account for salary taxation at vesting and capital gains taxation at the time of sale. For cross-border RSUs, tax treaties can help reduce double taxation. Seeking professional tax advice ensures compliance while maximizing tax-saving opportunities.

For expert assistance in RSU taxation and NRI tax planning, Dinesh Aarjav Associates provides comprehensive guidance tailored to your financial needs.