Last reviewed: 25 September 2026. If you work at the Indian arm of a US (or other foreign) company and hold RSUs or ESPP shares in the foreign parent, there is one number that should worry you more than any tax rate: Rs 10 lakh. That is the penalty per year of default under the Black Money Act for not disclosing those foreign shares in Schedule FA of your income-tax return — and it can apply even if you never sold a single share, and even if you paid every rupee of tax due on the perquisite itself. From 1 October 2024 the penalty does not apply where the aggregate value of your foreign assets other than immovable property does not exceed Rs 20 lakh, but the disclosure itself remains mandatory whatever the value. Salaried employees at Indian subsidiaries of foreign companies are frequently unaware this disclosure applies to them at all. This guide walks through how RSU and ESPP grants are actually taxed in India, at every stage, and where the real compliance traps sit.
RSU/ESPP from a foreign parent is not the same as an Indian startup ESOP
It's worth being precise about what this post covers, because the two situations are taxed under overlapping sections but play out very differently in practice. An Indian-company ESOP — the kind granted by an Indian startup to its own employees — involves shares of an Indian private company, valued under Rule 11UA, that are usually illiquid until an exit event. We've covered that separately in our guide to ESOP planning for Indian startups. This post is about a different situation entirely: an employee of an Indian subsidiary receiving RSU or ESPP grants in the shares of its foreign parent (commonly listed on NASDAQ or NYSE). The perquisite-tax mechanics are similar in spirit, but the foreign-asset reporting, currency conversion and cross-border tax-credit questions are unique to holding shares of a company incorporated outside India, and that is the focus here.
Step 1: Tax at vesting (RSU) or purchase (ESPP) — the perquisite
The first tax event happens the moment the shares actually become yours — RSU vesting date or ESPP purchase date — regardless of whether you sell them or even have any way to sell them immediately.
- RSUs: the Fair Market Value (FMV) of the shares on the vesting date, less any amount you paid to acquire them (usually nil), is taxed as a perquisite under section 17(2)(vi) (FY 2025-26 and earlier) / section 17(1)(d) of the Income-tax Act, 2025 (from tax year 2026-27). It is added to your salary income for that year and taxed at your normal slab rate.
- ESPP: the same section applies, but the taxable amount is the discount — the FMV on the purchase date less the discounted price you actually paid under the plan.
This is a genuine cash-flow issue worth planning around: a large vesting tranche can push a meaningful amount into your taxable salary in a year when you haven't received any cash from the RSUs themselves and may not intend to sell immediately.
TDS on the perquisite: the cash-flow problem
Your Indian employer is legally required to deduct TDS on this perquisite value as part of your regular salary TDS — under section 192 for FY 2025-26 and earlier, and under section 392 of the Income-tax Act, 2025 (old 192) from 1 April 2026 — even though the "salary" component here is a foreign, non-cash stock benefit. Since there's no cash from the RSU/ESPP itself to withhold from, employers typically handle this by reducing your next cash salary payout, or by asking you to deposit the shortfall separately. It's worth checking your payslip around a large vesting date rather than being surprised by it, and confirming the TDS actually appears in your Form 26AS/AIS for that year.
Step 2: Tax at sale — capital gains
When you eventually sell the shares, capital gains are computed as the sale price less the FMV that was already taxed as a perquisite at vesting/purchase (that FMV becomes your cost of acquisition). This avoids taxing the same value twice — once as salary, once again as a gain.
Because these are shares of a foreign company, they are not listed on a recognised stock exchange in India even if they trade on NASDAQ or NYSE. That means the STT-paid concessional capital-gains regime available for Indian listed equity does not apply. Instead, standard capital-asset rules apply:
- Long-term (holding period more than 24 months from the vesting/purchase date): taxed at 12.5% without indexation.
- Short-term (24 months or less): taxed at your slab rate.
Worked example
An employee's RSUs vest on 1 March 2025 with an FMV of Rs 8,00,000 on that date (nothing paid). She sells the shares on 1 September 2026, roughly 18 months later, for Rs 11,00,000.
| Event | Date | Tax treatment |
|---|---|---|
| Vesting | 1 Mar 2025 | FMV Rs 8,00,000 taxed as salary perquisite in FY 2024-25 under section 17(2)(vi) of the 1961 Act, at slab rate; TDS deducted by employer under section 192 |
| Sale | 1 Sep 2026 | Sale price Rs 11,00,000 − cost (FMV already taxed) Rs 8,00,000 = capital gain of Rs 3,00,000 |
| Classification | Held ~18 months | Less than 24 months → short-term capital gain, taxed at her slab rate in tax year 2026-27 under the Income-tax Act, 2025 |
Had she instead held the shares for more than 24 months from the vesting date, the same Rs 3,00,000 gain would instead be long-term, taxed at 12.5% without indexation.
Currency conversion: which rate to use
Every figure above starts life in a foreign currency, but Indian tax is computed in rupees. The FMV on the vesting/purchase date (for the perquisite) and the sale proceeds (for capital gains) must each be converted using the rate prescribed under Rule 115 — broadly the State Bank of India's telegraphic transfer buying rate for that currency as on the relevant date — not an average rate, not the rate on the date you check your brokerage statement, and not a rate you choose for convenience. For tax year 2026-27 onward, the corresponding rule of the Income-tax Rules, 2026 applies.
The disclosure that matters most: Schedule FA
This is the part of RSU/ESPP compliance that carries the most disproportionate downside, and it's worth its own heading. Any resident individual who is "ordinarily resident" and who held foreign equity — including unvested-turned-vested RSUs and ESPP shares — at any point during the relevant calendar year must disclose it in Schedule FA (Foreign Assets) of their income-tax return. For tax year 2026-27 onward, follow the reporting period specified in the new ITR form; whether it stays on a calendar-year basis is under clarification, so check with us before relying on it. Three things make this different from most other reporting thresholds:
- There is no minimum value for disclosure — even a single share triggers the requirement.
- It is triggered by holding, not by selling. Shares you still hold, never sold, still had a vesting perquisite taxed — and still must be reported every year you hold them.
- Penalty of Rs 10 lakh under ss.42/43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 — except where the aggregate value of foreign assets (other than immovable property) does not exceed Rs 20 lakh (from 1 October 2024); disclosure in Schedule FA remains mandatory regardless. The penalty is independent of, and in addition to, any regular income-tax demand.
We go into the full mechanics of what to report and how in our detailed Schedule FA guide for AY 2026-27. If you think a past year's return may have missed this, our note on the Foreign Assets Disclosure Scheme covers the limited routes available to correct historical gaps.
Claiming credit for foreign tax withheld: Form 67 timing
If the foreign country (commonly the US) also withholds tax at vesting or sale, you may be able to claim relief from double taxation as a Foreign Tax Credit (FTC), reported via Schedule FSI and substantiated with Form 67. The timing rule is in Rule 128(9), as amended by Notification 100/2022: Form 67 can be filed up to the end of the relevant assessment year, provided the return itself is filed within the time allowed under section 139(1) or section 139(4). A belated Form 67 outside that window, or a return filed outside those sections, puts the FTC claim at risk even where the underlying treaty relief would otherwise be available — so file Form 67 with the return rather than after it. For tax year 2026-27 onward, the corresponding rule of the Income-tax Rules, 2026 governs the timing; confirm it before relying on it.
Common mistakes we see
- Assuming no tax is due because "I haven't sold anything" — the vesting/purchase perquisite is taxed regardless of sale.
- Skipping Schedule FA because the holding is small, or because the shares were sold before the return was filed — the holding-during-the-year test still applies.
- Applying the listed-equity LTCG treatment to foreign shares by mistake, understating tax on a sale.
- Using the wrong exchange rate, or converting at the date of sale for the perquisite value instead of the vesting/purchase date.
- Filing Form 67 late, or not at all, and losing an otherwise valid Foreign Tax Credit.
- Treating RSU/ESPP compliance as the same as an Indian-company ESOP and missing the foreign-asset-specific steps altogether.
Frequently asked questions
I haven't sold any of my RSUs yet. Do I still need to report them in Schedule FA?
Yes. Schedule FA reporting is triggered by holding a foreign equity interest at any point during the calendar year, not by selling it. Even a single unsold RSU or ESPP share credited to your demat/brokerage account abroad must be disclosed. Many employees assume the reporting obligation only arises on sale — it does not, and this is the single most common RSU-related filing gap we see.
Is ESPP taxed differently from RSUs?
The mechanism is the same — both are taxed as a perquisite in the year of vesting (RSU) or purchase (ESPP): under section 17(2)(vi) for FY 2025-26 and earlier, and under section 17(1)(d) of the Income-tax Act, 2025 from tax year 2026-27. For RSUs the taxable perquisite is usually the full FMV on vesting date since nothing is paid; for ESPP it is the discount, i.e. FMV on the purchase date less the discounted price you actually paid.
Do RSUs or ESPP shares from a US-listed company qualify for the lower long-term capital gains rate available on Indian listed shares?
No. The concessional STT-paid rates apply only to equity shares/units listed on a recognised stock exchange in India. Shares of a foreign parent — even if listed on NASDAQ or NYSE — are not listed on an Indian exchange, so standard capital asset rules apply: long-term (holding beyond 24 months from vesting/purchase) is taxed at 12.5% without indexation, and short-term is taxed at your slab rate.
My US employer already withheld tax on my RSUs. Can I avoid paying tax again in India?
You remain taxable in India on the same perquisite and capital gains as a resident, but double taxation is generally relieved through a Foreign Tax Credit under the India-US treaty, claimed via Schedule FSI and Form 67. It is not automatic — you must compute the credit correctly and file Form 67. Under Rule 128(9), Form 67 can be filed up to the end of the assessment year, provided the return itself is filed within the time allowed under section 139(1) or 139(4).
What if I forgot to report RSUs in Schedule FA in an earlier year's return?
A missed Schedule FA disclosure can attract a Rs 10 lakh penalty under the Black Money Act for that year of default, unless (from 1 October 2024) the aggregate value of your foreign assets other than immovable property does not exceed Rs 20 lakh. Depending on the year and whether the return can still be revised or updated, there are limited routes to correct the position, and the Foreign Assets of Small Taxpayers Disclosure Scheme is open until 31 December 2026 for certain past defaults. This needs a case-specific review rather than a blanket answer — the earlier it is looked at, the more options are usually available.
How do I convert the RSU value to rupees for tax purposes?
The FMV on the vesting or purchase date (for the perquisite) and the sale proceeds (for capital gains) must each be converted to INR using the prescribed rate under Rule 115 — normally the State Bank of India telegraphic transfer buying rate for the relevant foreign currency as on the relevant date, not an average or a rate you pick yourself. For tax year 2026-27 onward, the corresponding rule of the Income-tax Rules, 2026 applies.
Is my Indian employer required to deduct TDS on the RSU perquisite even though it's a foreign, non-cash benefit?
Yes. The Indian employer must include the perquisite value in salary and deduct TDS on it — under section 192 for amounts up to 31 March 2026 and under section 392 of the Income-tax Act, 2025 from 1 April 2026 — even though the underlying shares are foreign and no cash is received. In practice this is usually done by adjusting a later cash salary payout, or the employee is asked to fund the shortfall — worth planning for around large vesting events.
Getting the perquisite, capital-gains and Schedule FA pieces right together — and on time — is where most employees need support. We help salaried professionals with income-tax filing that correctly accounts for foreign equity, and with responding if a past year's disclosure needs attention.
Income Tax Filing Notice Management Talk to us Foreign subsidiary accounting & FEMAThis article explains the general tax treatment of RSU and ESPP grants under Indian income-tax law as understood on 25 September 2026 and is for educational purposes only; it is not a substitute for advice on your specific facts, which can vary with your employer's plan documents, residential status and the relevant tax treaty. Please consult us or another qualified professional before acting on it.