RSU Tax in India FY 2025-26: The Two-Stage Math Most Techies Get Wrong
If you work at Google India, Microsoft, Adobe, Salesforce, Amazon, Meta or any IPO'd Indian unicorn earning ₹22L+ CTC with an RSU component, you pay tax on those shares twice. Once when they vest. Again when you sell. Miss either stage and you either overpay by ₹2-3 lakh per vest cycle, or — worse — trigger a ₹10 lakh Black Money Act penalty for forgetting one form.
This is the FY 2025-26 playbook with real ₹ math.
Summary
| Stage | When it triggers | What's taxed | Rate (FY 2025-26) |
|---|---|---|---|
| Stage 1: Vest | Vesting date | FMV of vested shares = salary | Slab rate (up to 30% + cess) |
| Stage 2: Sale (US-listed, <24 months) | Sale date | Sale price − vesting FMV | Slab rate (STCG on unlisted foreign) |
| Stage 2: Sale (US-listed, >24 months) | Sale date | Sale price − vesting FMV | 12.5% LTCG + surcharge + cess |
| Stage 2: Sale (Indian-listed, <12 months) | Sale date | Sale price − vesting FMV | 20% STCG (Section 111A) |
| Stage 2: Sale (Indian-listed, >12 months) | Sale date | Sale price − vesting FMV (above ₹1.25L exempt) | 12.5% LTCG (Section 112A) |
| Schedule FA | Every year you hold foreign RSU | Disclosure only | Penalty: ₹10 lakh per year if missed |
| Form 67 | If US tax withheld on sale | Foreign Tax Credit claim | Must file BEFORE ITR |
How RSU tax works in India
RSUs are not a stock option. There's no exercise price, no choice. When the cliff hits and shares vest, those shares are yours — and the government treats their full market value as salary income that day.
Stage 1: Vesting — taxed as perquisite
On the vest date, your employer adds the fair market value (FMV) of the vested shares to your salary and runs TDS on it under Section 17(2). For US-listed RSUs, the FMV is the closing price on the US exchange on the vesting date, converted at the SBI TT buying rate.
Most employers do "sell to cover" — they automatically sell ~30% of vested shares to fund the TDS. The remaining ~70% land in your brokerage (E*Trade, Morgan Stanley, Carta, Fidelity).
Key trap: the TDS rate is your estimated marginal slab. If your total income pushes you into the 30% + surcharge band, the actual liability is higher than 30% — you owe the gap when you file. People in the 39% effective bracket (₹50L+ income with cess and surcharge) routinely owe ₹1-2 lakh extra at filing time.
Stage 2: Sale — taxed as capital gains
The day you sell, capital gains kick in. Your cost of acquisition is the FMV that was already taxed at vest — not zero. This is the line where most people overpay. They forget the cost basis and pay capital gains on the full sale price.
For US-listed RSUs (Google, Microsoft, Meta, Adobe — listed on NYSE/NASDAQ): treated as unlisted foreign shares. Holding period of 24 months separates short-term (slab) from long-term (12.5% LTCG + surcharge + cess, no indexation post Budget 2024).
For Indian-listed RSUs (post-IPO Indian unicorns — Zomato, Nykaa, Paytm, Mamaearth): treated as listed equity. 12 months separates STCG at 20% (Section 111A) from LTCG at 12.5% (Section 112A, ₹1.25 lakh annual exemption applies).
Real example: Priya, ₹28L CTC at Google India, 200 RSUs vest at $150
Priya joined Google India in May 2023 with a 4-year vesting RSU grant of 800 shares (25% cliff, then quarterly). Her first 200 shares vest on 15 May 2026 at $150. She sells 100 shares on 20 May 2026 at $155 to fund a home down payment, holds the other 100.
| Item | Calculation | Amount |
|---|---|---|
| Vest FMV (200 × $150 × ₹84/USD) | Perquisite added to May salary | ₹25,20,000 |
| Marginal slab (30% + 4% cess) | Vest-day TDS | ₹7,86,240 |
| Sell to cover (auto by E*Trade) | 60 shares sold at $150 to pay TDS | 140 shares net to her |
| Sale of 100 shares on 20 May 2026 | 100 × ($155 − $150) × ₹84 | ₹42,000 short-term gain |
| STCG on sale (slab 30% + cess) | Unlisted foreign, <24 months | ₹13,104 |
| Total tax on this vest cycle | TDS + STCG | ₹7,99,344 |
What she must NOT forget:
- Schedule FA: disclose the 140 remaining Google shares (peak balance + closing balance, USD + ₹).
- Form 67: only relevant if US withheld tax on her sale. RSU sales by Indian residents are usually NOT US-taxed (no US source income), so this likely doesn't apply to her sale — but it WOULD apply if Google had a US withholding event on vest, which most employers route to India payroll instead.
If Priya holds those 100 remaining shares for 24+ months and sells in 2028 at $200, the gain (100 × $50 × ₹84 = ₹4,20,000) is LTCG at 12.5% = ₹52,500 + surcharge — not slab rate. That's the case for sitting on vested shares past the 24-month mark.
Schedule FA — the ₹10 lakh disclosure trap
Every Indian resident holding foreign assets at any point during the financial year must file Schedule FA in their ITR. RSUs of Google, Microsoft, Meta, Adobe — all foreign assets. So is the cash sitting in your Morgan Stanley or Fidelity account before you remit it.
Miss Schedule FA and the Black Money (Undisclosed Foreign Income and Assets) Act, 2015 kicks in: ₹10 lakh penalty per year of non-disclosure, plus possible prosecution up to 7 years rigorous imprisonment. The Income Tax Department now cross-checks Schedule FA against the data they get under FATCA/CRS from the US, UK, Singapore — there is no plausible non-detection any more.
What to disclose:
- Name of the foreign company
- Address
- Initial value of investment (the FMV that was taxed at vest)
- Peak balance during the year (highest market value at any point)
- Closing balance (market value on 31 March)
- Total gross interest/dividend received
Do this for every foreign brokerage account — even if you have zero shares but the account is open.
Form 67 — Foreign Tax Credit, only if US actually withheld
Form 67 is for claiming credit on tax already paid abroad on the same income, under the India-US Double Taxation Avoidance Agreement (DTAA). For RSU vesting, US employers of Indian residents typically do NOT withhold US tax (you're not US-tax-resident). So Form 67 usually does not apply to the vest event.
It does apply if you happen to be on a US assignment when the vest hits and US payroll withholds, or if you have any US-source dividend on the held shares with US withholding.
Non-negotiable rule: Form 67 must be filed BEFORE you file your ITR, not after. File it late and the Foreign Tax Credit is lost — courts have upheld this strictly. Use the online portal under e-File → Income Tax Forms → Form 67.
What to do this week
- Pull every vest statement from FY 2025-26 (1 April 2025 to 31 March 2026) from your brokerage. Sum the FMV that landed in your perquisite for the year. Cross-check it with Part B of your Form 16.
- Compute your real marginal rate — if your total income (salary + vest perquisite + interest + capital gains) crosses ₹50L or ₹1Cr, your effective rate is 34.32% or 39%, not 30%. Pay advance tax on the gap before 15 June 2026 to avoid Section 234C interest.
- List every foreign-listed share you hold on 31 March 2026 with peak balance, closing balance, dividend received. This is your Schedule FA worksheet.
- Check if any US tax was withheld on dividends or sales during the year. If yes, file Form 67 BEFORE you submit your ITR — same login, different form.
- Decide your sale timing for the next vest based on the 24-month line: every share you sell at the 23-month mark costs you slab rate; at the 25-month mark, 12.5% LTCG. The difference on a ₹10 lakh gain is ₹1.65 lakh.
The honest summary
RSU tax in India isn't complicated once you separate the two stages. Most overpaying is from forgetting cost basis at sale. Most penalty exposure is from forgetting Schedule FA. Most timing leaks are from selling 22 months in instead of waiting another 60 days.
If you want this run on your actual vest schedule with your real numbers — slab rate, FX, holding period, surcharge — pulling that together by hand takes about three hours.
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