Restricted Stock Units (RSU) are a form of equity compensation given to the employees / directors of the company in lieu of any cash bonus. This is given free of cost by the company but with some restrictions. The grant of RSU is “restricted” because it is subject to a vesting schedule, which is generally based on length of employment but in some cases, it is additionally linked to performance too. It may also be also be governed by other limitations such as transfers or sales that your company may impose by way of RSU grant Agreement. Many MNCs in India grant RSU of their holding company to compensate their employees / directors in order to retain the employees in the company for a longer period.
Unlike ESOP, vesting of which is subject to an option exercised by the employee / director at a future date, RSU are granted upfront to the employees / directors with an option of “reverse vesting” (see next para). After the vesting period is over, the RSU are converted to normal stock (equity) and the holder is vested with the voting rights and rights to receive dividends on these shares. Even if the value of shares falls drastically, they still have some value for the holder as the RSU were allotted free of cost, unlike the shares under ESOP.
The RSU are granted upfront to the employees / directors but they are subject to a vesting schedule, that may be a “graded vesting” schedule or a “cliff” vesting schedule. If the receiver of the RSU leaves the company prior to the expiry of vesting period, these RSU (not yet vested) are vested back in favour of the company and hence this transaction is called reverse vesting. For your ease of understanding the two types of vesting schedules are explained below: –
The RSU can be taxed after clubbing with the salary as a perquisite and thereafter in Capital gains arising on account of holding such shares. You might be interested to know how the tax is deducted and at what rates if the RSU are vested in a foreign country and sold in a foreign country. To make this understanding clear, we have tried to cover each event one by one in the following pointers: –
We often encounter general queries, such as, if there is any double taxation post conversion of RSU to regular shares. This doubt is backed by following transactions: –
The shortest answer to this query is NO. These transactions related to RSU are not taxed twice. If they would have been taxed twice, you might have received a document from the foreign tax regulator which would be akin to the Form 16 depicting the amount of tax deducted. This is because, your company has already taken care of such issues and filed necessary declarations to avoid double taxation (in countries having DTAA agreement).
When the stocks were vested, ie. the RSU were converted to regular shares, the “sell to cover” option was used to meet the tax liability and the value of such shares sold (in your case as quoted above, it shall be corresponding to 300 shares) is shown as TDS by your company and the same is reflected in Form 16 Part B.
As stated above, the shares (after conversion from RSU) of MNCs are not listed on Indian Stock Exchanges and hence it will be treated as unlisted securities and accordingly capital gain on short term asset or long-term asset depending on the period of holding shall apply. If the RSU were subject to “cliff vesting” and you sold the shares on the vesting date, no capital gain shall be applicable as the shares were vested and sold on the same date. In graded vesting, capital gains may accrue as most of the employees prefer to sell the shares after the expiry of full vesting period or in some cases even the company restricts to sell any shares unless all the RSU get converted to shares after the expiry of vesting period.
Grant of RSU by the foreign company to the employees / directors of its subsidiary / office will be classified as Overseas Portfolio Investment (OPI) by the individual and this shall be reported in Form OPI Part B to the RBI. We have covered this aspect in detail in our blog on Overseas Investment Through ESOP.
In this article we tried to cover all aspects related to grant of RSU; how it helps in retaining employees, how it gives potential to participate in the employer’s success and get rewarded on account of increase in share prices, your tax liability and related reporting.
After grant of RSU, the Indian company transfers funds equal to the market value of the shares to its foreign holding company. It would also be interesting to explore whether such transactions will be counted against capital account transactions or revenue account transactions under section 37 (1) of the Income Tax Act, 1961. Whether it will be booked as employee benefit expense or capital account loss; there are so many contradicting case laws on this. To know about RSU related transactions in the hands of the employer, we recommend you to keep visiting this space as we will shortly publish our next research article on this.
You may also like to read: –
Thanks for detailed explanation. Taxation is clearly understood. Lets say all the taxes are paid and foreign RSUs/dividend on RSUs etc is properly reported by resident Indian. Then after that lets say RSUs are sold; Is there a requirement or guideline by RBI that says the proceeds of sale of foreign RSU or dividend accrued in USD must be transferred back to Indian bank account ? Can a person transfer the proceeds to a say US bank account if they had one ?
Dear Reader,
The money cannot lie in US bank accounts. It has to be repatriated to India within stipulated timeframe. You may connect with your bank for the format of self declaration to be submitted at the time of repatriation.
Dear Sir ,
Please help explain a bit more on TDS on RSU vesting , for my case RSU got vested and approx 31.2% got sold under sell to cover in addition the total amount on vested shares was converted to INR and added to my Indian Salary , so effectively i paid 31% in USA and then approx 33% in india as per my slab , you have mentioned the 30% tax which is deducted in USA is mentioned as TDS in Form 16 Part B , however i do not see any TDS mentioned by employer on account of RSU vested , how do you view this or am i making any worng assumptions, pls clarify.
Thanks in Advance
Sunil S
Dear Reader,
You may prefer to connect with us for professional advice with respect to your specific case.
Hi
Thanks for the informative article on RSU. I am a resident Indian, work at a MNC and have RSUs of that MNC which is listed in US and unlisted in India. I have one basic question. If I sell the vested RSUs in Jan 2024, do I need to pay capital gains tax to India Income Tax and report in Foreign Income Schedule of ITR2 in FY 2023-24 (AY 2024-25) or FY2024-25 (AY 2025-26)? This question arises because US and India follow different financial year (US – Jan to Dec FY whereas India – April to Mar). Thanks in advance for your response.
Dear Reader,
If you have earned income under capital gains, it needs to be reported in ITR. The issue of Jan -Dec cycle arises only in Schedule FA where your net holding is to be disclosed.
I have vested shares of MNC company held for more than 24 months. I paid tax at the time of vesting.
Now that company is acquired by another MNC company and that other MNC company has partly issued their shares and partly paid cash on the existing vested shares of the acquired company.
That new MNC has treated the amount paid in cash as dividend and deducted tax.
How is this treated in India as I already paid the tax on vesting date.
Can I claim the tax deducted on dividend by MNC on my other salary income u dear DTAA agreement.
Please reply. Thanks @Regards
Dear Reader,
Your case requires analysis of your supporting documents. You may prefer to connect with us for professional advice.
Is Tax treatment same for espp as well?
Dear Reader,
It is not clear from your query if you are referring to tax treatment at the time of selling the shares or at the time of purchase of shares. Please note that at the time of selling of shares, capital gains shall be applicable depending upon the nature of shares and period of holding.
Yes, I wanted to know the taxation at the time of selling ESPP(Employee Stock Purchase Plan). Whether short term and long term taxation work similar to RSU selling in ESPP.
Dear Reader,
The shortest answer to your query is YES. But it may please be noted that the calculation of the capital gains will depend on several factors such as whether listed or unlisted, period of holding, cost of acquisition, etc.
In case you require a detailed opinion along with calculation of taxes in your case, you may approach us for professional assistance with full details of your case.
If I hold the vested RSU and don’t sell do I have to file ITR-1 or ITR-2?
Dear Reader,
ITR-2 is applicable in your case.
Hi, thanks for this informative article.
I have a question – Whether the employer can claim deduction of such RSU expenses?
If yes, whether such deduction can be claimed as per the straight-line method based on which such expenses were recognised in accounts books? or deduction will be allowed only for those RSU expenses which have actually vested with the employee ?
Thanks!
Dear Reader,
It will be prudent to refer to the judgment in the matter of Korn Ferry International Pvt Ltd vs ACIT (OSD) Mumbai [I.T.A. No. 7367/Mum/2014] and Dy.CIT 3 (2)(2) Mumbai vs Korn Ferry International Pvt Ltd [I.T.A. No. 7139/Mum/2014].
Hi,
Thanks for the great insights on this topic. I have few queries. Could you please answer them?
1. If all the RSUs are sold in October 2022, should that be declared under Schedule FA?
2. I got to know about capital gain and loss now only. I had sold some RSUs at loss in February 2022 at a loss of 1000 USD and again I sold some RSUs in October 2022 at a gain of 600 USD. Is it possible to show the loss from February and offset that with the gain happened in October so that I can carry remaining 400 USD as short term capital loss?
3. I had filed ITR-1 last year without know about foreign assets and capital gains and loss. Can that be filed with ITR-2 under ITR-U though there is a loss of 1000 USD in case if it is considered under last AY?
Dear Reader,
1. If all the RSUs are sold during the financial year, you should disclose the transaction in Schedule FA.
2. Loss from sale of the RSUs can be set-off against gains from sale of RSUs in subsequent years. However, it is to be ensured that the loss is aptly booked under relevant schedules of the ITR.
3. ITR-U can be filed in cases where the carried forward loss is reduced or tax liability is increased. However, in your case, you are not eligible to file ITR-U as you wish to increase the carried forward loss. In short, if there is no additional tax liability, you cannot file ITR-U.
Can we claim any amount of tax exemption on the stocks amount that we have received and added into our form 16. Some of the text experts suggested me that due to multiple taxes in foreign countries , we can claim some 20% of amount of total vested stocks value as tax exemption amount while filing ITR. Please replay asap.
Dear Reader,
Please connect with us with details of your case at [email protected] for professional assistance in this matter.
Hello,
I have a question. In your example you have mentioned 700 are left what is the cost of 700, is it $7000 or do we include the taxes paid in the cost, so the cost becomes $10000.
Dear Reader,
The shortest answer is value of 700 shares will be the cost. For a detailed opinion on this aspect, you may connect with us for professional assistance.
Need assistance for ITR-2 filing considering RSUs vested during calendar year
Dear Reader,
Please connect with us for professional assistance in the matter.
Hello,
Very informative article. One question, in the example above of 1000 shares, in which 300 are sold and 700 are remaining. Would the cost of 700 be the value of 1000 shares or 700 shares. For example: Say Value of per share is $10, so total of 1000 shares is $10000, 300 shares are sold to cover taxes. Now value of 700 shares be $10000 or $7000, can you explain with reason. Essentially, will the taxes paid in India be included in the cost? If not, why not, because if instead sell to cover, I would have paid taxes in cash, then I would have 1000 shares, and the value would automatically be $10000.
It will be helpful if you can explain the rationale.
Thank you,
Vineet
Dear Reader,
It appears that you are looking for a detailed opinion on your queries regarding the taxability of RSUs. We are glad that you approached us with your queries. Please connect with us for professional assistance in this matter.
Hi,
Just had a question I was granted shares of an unlisted company in 2019 in the US, shares were vested by me in 2022 but the same has not been added as perquisites in my form 16 also no additional tax also deducted in my form 16 for FY 22-23 in such scenario what should I do?
How do I report the same in my tax return?
Could you please help me?
Dear Reader,
Your case requires detailed analysis of your documents. Please connect with us for professional assistance in this matter.
Thanks for the Article. I have been struggling to find info regarding RSU but this article helped me a lot.
Please advise me on the following queries:
1. If the shares have been vested in March 2023 do we need to report them in ITR for A.Y. 2023-24? ( I have noticed that in ITR 2 it is mentioned we need to report balances till 31-12-2022).
2. Do we need to report Capital Gains in Schedule FA or only in Schedule CG? and can we claim commission or brokerage charge on the sale of shares?
3. If we receive 100 shares and 30 shares have been set aside for tax purposes, do we need to report value of 70 shares in Schedule FA even though value of 100 shares have been reported on Form 16?
4. Where do I need to find the exchange rate for reporting purposes?
Thanks in advance.
Dear Reader,
We understand that you require assistance in filing your ITR with the RSU transactions. Please connect with us for professional assistance.
This was a pretty informative article. Though it doesn’t mention anything about Form 67. I can see that the FMV of vested shares was added to my income in Form 16 and then the tax liability was calculated on the total income. However, do I still require to fill Form 67 for double taxation avoidance? I have already paid tax by ‘sell to cover” option on the day of vesting but I am not sure about the need of filling the form 67. Please shed some light on this issue. Thanks.
Dear Reader,
Thanks for the encouraging words. As you can see in your Form 16, the tax has been deducted and tax liability was calculated on the total income. You may check if you have received the credit of the TDS which you can utilize at the time of filing returns. If you have received the credit and no other tax was deducted in the foreign country, you will not be required to fill Form 67.
If tax has been deducted and you wish to avail credit for the amount of any foreign tax paid in a country outside India by way of deduction or otherwise, you will be required to furnish the statement in Form 67 on or before the due date specified for furnishing the return of income under sub-section (1) of Section 139 to claim credit of such taxes.
You may connect with us for professional assistance.
Very well written article and well explained replies. My query is what would be the cost of retained shares (post vesting) for the purpose of calculating the Capital Gains? As tax is paid on FMV of the vested shares – is the FMV on the vesting date taken as cost for calculating the Capital Gains?
Dear Reader,
Thanks for appreciating. Yes, your understanding is correct. FMV on the vesting date shall be taken as cost for calculation of capital gains. It is also worth noting that the same amount on the vesting date would have been added in your Salary on which you have paid the taxes.
You may contact us for professional assistance in this regard.
Hello, First of all thanks for writing such a nice article around RSU Vesting and Taxes this is really informative and useful.
I have a few questions around filling up the Schedule FA.
1. Nature of financial asset : A3. Details of Foreign Equity and Debt Interest held (including any beneficial interest) in any entity at any time during the calendar year ending as on 31st December, 2022 : Is this the right choice for RSU ?
2. Nature of Entity : What should be filled here ?
3. Peak value of investment during the Period : Is this the Shares peak value from Jan 2022 to Dec 2022 X USD to INR conversion on that day X No. of shares held ?
4. Total gross amount paid/credited with respect to the holding during the period : What should be filled here As I have only got the RSU’s from time to time ?
5. Total gross proceeds from sale or redemption of investment during the period : What should be filled here, I have not sold a single share till date ?
6. Closing Value : Would this be Shares Price on 31st Dec 2022 X USD to INR conversion on 31st Dec 2022 X No. of shares held ?
7. I have got RSU’s from 2021 to till date on different dates (Quarter wise). So each date on which RSU was received should be added as One entry in the FA schedule correct ? So for example if I have received total 9 times RSU on 9 different dates in the last few years than in FA schedule I should enter 9 different records ?
Dear Reader,
It seems that you are having issues with filing your ITR which involves step by step clarification. You may connect with us for professional assistance in this regard.
I have few RSU’s vested from an MNC last year i.e 2022. I have not exercised the shares and holding them in my account. I understand that we have to report this holding in FA schedule. I have few questions in this regard:
1. What will be correct head to report this? I believe table D should suffice?
2. What would be the exchange rate to be used to report the Cost of Investment or any other fields in INR value?
3. Your article mentions that the RSU’s vested are not taxed twice (sell to cover option). So we are not eligible for any Foreign tax credit when the shares are vested with some shares withheld and deposited as tax?
Dear Reader,
Your query is regarding the procedures to file the ITR. You may connect with us for professional assistance.
Dear Sir, Thanks for providing good insights.
I am a US Citizen residing in India for last 4 years. My company has given 100 RSU which is listed in USA and 25 got vested in FY2022-23 . Queries I have, Out of 25, I sold 15 shares and remaining 10 didnt sell. Need some guidance, what should I do while filing the ITR in India.
Dear Reader,
You need to record this transaction (sale + holding) in your ITR. You may connect with us for any specific professional assistance in this regard.
Great Article! Follow up question: I have sold some RSUs this year with long term capital gains. Is it mandatory to bring the money back to India within 180 days? Can’t I just reinvest it directly in some US based brokerage account for buying equities?
Also, does the answer change if I plan to offset the LTCG against home purchase?
Also, I tried reaching out to you on the phone number mentioned in Contact Us page for helping set up a company but no one picked. What is the best way to reach out to you?
Dear Reader,
The shortest answer to your first query is YES, you can reinvest the sale proceeds in US equity.
Regarding your second question setting-off the LTCG against purchase of residential house, please be informed that Subject to the provisions of 54F of the Income Tax Act, 1961 you can purchase residential property to avoid capital gains. Since these shares shall be treated as unlisted shares (not listed in India), they will be classified as immovable capital assets as per Section 2 (14) of the Income Tax Act. So, the period of holding will be determined as per its classification and you should take care that only long term capital gains shall be exempted as per Section 54F.
Once the liability to pay LTCG accrues, you shall be able to set-off as per stipulated provisions. There is no need to bring the investments back in India. However, if there will be requirement to open a capital gain account in your case, the money will be required to be deposited in such account. Here, we would like to make it clear that capital gains exemption will not be available for the house bought or constructed outside India.
For assistance in setting up your company, you can reach out to us through the e-mail [email protected] or [email protected] with your plans and expected assistance from our side. Please note that we handhold our clients and navigate them through their business journey right from the inception stage.
Very useful info.. Just another one – I am holding RSUs which have been granted by my company and have vested already, but I haven’t sold them yet. I am now relocating to UK where I believe the RSUs are taxed immediately when they vest unlike in India where one gets taxed only when you sell the RSUs. My question is – 1) For RSUs that I am holding and have vested already, will those be taxed in India or in UK when I sell them. 2) If I continue to hold the vested RSUs while I move to UK, will those be taxed the moment I land in UK as there the taxes need to be paid upon vesting.
Dear Reader,
Your assumption that the shares will be taxed only at the time of selling them is not correct. The shares are taxed as explained below: –
1. Vesting day (conversion of RSU to shares). The fair market value of the vested shares as on the vesting date is clubbed with the salary of the employee under section 17(2) of the Income Tax Act, 1961 and tax is payable as per the income tax slab rate applicable to the employee. For calculation of the value of perquisite, the exchange rate of the foreign currency prevailing on that particular date is also taken into account.
2. Capital Gains. This tax is applicable when you sell your shares. It will depend upon the period of holding and cost of acquisition.
You can check your statement of the shares vested and allotted to you. You might have already paid the taxes applicable to your salary bracket at the time of vesting. Since at the time of vesting, you were assessed in India, the tax is payable in India and not in UK.
Regarding your question on taxability on sale of shares, please be informed that it will depend upon your residence status at the time of selling the shares.
In case you require any personalized opinion, you can connect with us for professional assistance.
Hi,
Great write up.
I have one doubt, the Indian susbsidiary company has not settled the RSU dues(on account of RSU issued by foreign holding to employees of Indian subsidiary) to foreign holding company .The same has been outstanding for more than 3 years,whether this will attract noncompliance under FEMA ?
Dear Reader,
Since you have shared limited facts about the case, it is not clear if you are concerned with non-compliance on the part of the Company or your concerns are around individual taxation and compliances. You may connect with us with full details of the case for our opinion and professional assistance in this matter.
on march 15 2023 my RSU converter into common stock and my company gave me a salary slip where income is shown as earning and TDS also deducted but i dont see any money into my bank accont . when i ask they say its a rule to cut Tax on stock but then why income is shown on salary slip and money not credited to bank account ? can you help
Dear Reader,
Please note that the moment your RSU was converted to common stock, the value of perquisite was determined based on the fair market value of the shares on that particular day and the same amount was added to your salary under section 17 (2) of the Income Tax Act, 1961. For calculation of the value of perquisite, the exchange rate of the foreign currency prevailing on that particular date is also taken into account. Since TDS was required to be deposited, the same was done through sell to cover option and a part of your stocks might have been sold by your broker.
You can check the balance of the shares in your account and you will receive the money in your bank account when you will sell those shares.
In case you feel that we have been able to resolve your queries to your satisfaction, kindly review us on Google.
Hi,
Please guide on the following queries regarding RSUs which are foreign shares:
1. In Schedule FA, do we need to report only the RSU(s) which are vested? Or, even RSU(s) which are granted but have not vested need to be reported?
2. If an RSU after vesting is converted into cash (instead of share) and paid out, does is still need reporting in Schedule FA?
Thanks,
Shalabh
Dear Reader,
Please note that you are not holding any asset till the date your RSUs are vested and converted to common stock. Hence, its details should be mentioned in the schedule FA after you actually hold the shares.
Regarding your next question related to reporting of shares in Schedule FA in the event of selling all the shares for cash, please be informed that if you had any depository account during the previous year, it has to be reported in schedule FA. The only difference will be that the closing balance of the assets will be Zero (0).
If you think that we have been able to address your queries, kindly review us on Google.
Hi, Thanks for your answer. For point no.2, I would like to add to my previous question that in case an RSU is not converted into a share at all instead directly into cash pay out, does it still require to be reported in Schedule FA?
Thanks
Dear Reader,
This is a hypothetical question and we believe this cannot happen. If this is the case in your RSU transaction, kindly connect with us with specific details.
Thanks for your feedback.
Please advise whether Capital Gains from sale proceeds foreign stocks have to be reported as quoted or unquoted shares?
Dear Reader,
If you are facing any specific issue, you may connect with us for professional assistance.
Hello, I received 10 RSU for a US company, vested in February 2023, Form 16 received for FY22-23 has the perquisite under sec 17. When I file my tax return for FY22-23 will I need to submit ITR2 or will I submit ITR2 when I file my tax return next year for FY23-24 since US accounting cycle is Jan-Dec and they need to be accounted according to the vesting country? Can you please help with the same. Thank You
Dear Reader,
As soon as the RSUs were vested and credited to your account, the value will be accounted as a perquisite under section 17 (2) of the Income Tax Act, 1961. Since the shares have been allotted in FY 22-23, same has been reflected in your Form 16. You will appreciate that there are two aspects of accounting, one against the allottee and the one against the company which is allotting the shares. The company in the US will account for this transaction as per their applicable laws and rules. Since you are a Resident in India, your income will be taxed in India and the associated returns need to be filed as per the prevailing laws.
In your case, the monetary value has already been added to your salary in the previous financial year and accordingly the AIS would also have been updated. Hence, you need to file ITR-2 for the previous financial year, i.e Assessment year 2023-24.
You may connect with us for any professional assistance in this matter.
Thanks for explaining!
I have couple of questions.
1. I am working in India and have US RSUs (180). Vesting first 25% (45) in next month. If the ‘sell to cover’ is applied for this (i.e 14 stocks) . And if I keep remaining 31 socks for next 4 years and sell then, there will be mismatch in tax right? (Assuming stock price go up). Rather I can keep all next 4 years and then pay 30% tax.
2. I have short term capital loss (with Indian options trading) in 2019,2020,2021 and I declared in ITR2. Should I set off these loss with US RSU capital gain? Only on gain or full RSU stock price?
To calculate the gain I need the RSU buy price? Whether it is the granted date price or vested date price? If it is vested date price and I sell on same day, there won’t be any gain right?
Sorry, I have asked lot of questions. This is my first time with RSUs.
Dear Reader,
1. There will not be any mismatch of tax. The tax will be calculated once at the time of vesting. The value of the vested shares will be added to your salary in the month in which it has vested and shares are allotted to your account. It will be classified as a part of Salary under section 17(2) of the Income Tax Act, 1961. Further, when you will sell the shares, Capital Gain Tax will be levied depending upon the period of holding of the shares.
2. You can set-off the short term and long term capital loss as per the provisions of Income Tax Act 1961. If such shares are held for more than 24 months, they will be classified as Long Term Assets and holding lesser than 24 months shall be classified as Short Term Assets. We would like to bring to your kind notice the following provisions pertaining to Set off and Carry forward of losses under Income Tax Act.
As per Section 74 of Income Tax Act 1961,
a) the long-term capital loss must be set off only against income from long-term capital gains. However, short-term capital loss can be set off against income from long-term capital gains as well as short-term capital gains.
b) if the amount of loss cannot be set off entirely in one financial year, you are allowed to carry forward for 8 assessment years immediately following the assessment year in which the loss was first computed.
If you feel that we have been able to address your query to your satisfaction, please spare your valuable time to review us on Google.
LTCG is if you sell the stocks after 1 year, not 2 years from vesting. My stocks listed in Fidelity and E*Trade portals shows the same.
Short term is the stocks which were vested less than 1 year ago.
This website also confirms the same – https://www.bankbazaar.com/tax/understanding-taxation-of-rsu-esop-espp.html
Dear Reader,
The information in the quoted website is grossly incorrect. Foreign shares (whether listed or unlisted) are treated as Unlisted shares as they are not listed on any Indian Stock Exchange. Hence, the Income Tax Act, 1961 treats this as a sale of immovable property and hence the defining period is 2 years. Please refer to the document provided by Income Tax Department by clicking the link in this comment or in the Article itself.
If the company has granted RSUs at the price of $600 for an amount of 100K (166 stocks) vested in 4 installments in 4 years. By the time the first 41 stocks are vested for the first year, the price has fallen to $400. Will the tax be deducted for the vesting price of $600*41 or should it be on the vesting price of $400*41?
Dear Reader,
There shall not be any tax liability on the grant date as it is just a promise by the employer to get the shares at a future date subject to fulfilment of certain conditions as may be prescribed by the grant agreement.
The fair market value of the vested shares as on the vesting date is clubbed with the salary of the employee under section 17(2) of the Income Tax Act, 1961 and tax is payable as per the income tax slab rate applicable to the employee. For details, please see the paragraph on taxability.
This is a good article. Thanks for sharing this. Can I set off the capital loss short term and long term from RSU from a US company with Short term and Long term gains in India?
Dear Reader,
Thanks for the encouraging words. You can set-off the short term and long term capital loss as per the provisions of Income Tax Act 1961. If such shares are held for more than 24 months, they will be classified as Long Term Assets and holding lesser than 24 months shall be classified as Short Term Assets. We would like to bring to your kind notice the following provisions pertaining to Set off and Carry forward of losses under Income Tax Act.
As per Section 74 of Income Tax Act 1961,
a) the long-term capital loss must be set off only against income from long-term capital gains. However, short-term capital loss can be set off against income from long-term capital gains as well as short-term capital gains.
b) if the amount of loss cannot be set off entirely in one financial year, you are allowed to carry forward for 8 assessment years immediately following the assessment year in which the loss was first computed.
If you feel that we have been able to address your query to your satisfaction, please spare your valuable time to review us on Google.
Hello Samrish,
This article was highly informative and helped me realise that I should disclose my shares in ITR, Schedule FA even when I am holding it and no sell has happened yet.
I have a question here. Is there a best time to ‘exercise the rights’ on your vested units. I am holding some vested units of my employer which I haven’t exercised yet. As I haven’t exercised it, it is neither gaining any dividends nor have I paid any withholding tax. Its more than 2 years since the vesting date. The stock is listed in a foreign exchange. What is the best time to exercise this? Does the exchange rate influence this? I understand ‘sell to cover’ is irrespective of the stock price as its the no. of shares that is sold. I don’t have any plans to sell the shares after exercising. Please explain this with respect to the withholding tax in India. I understand that as soon as I exercise, I will be taxed that FY.
Regards,
Raghu
Dear Reader,
Thanks for the encouraging words. Best time to exercises is a personal choice and depends upon the factors you have mentioned. Regarding the taxability, yes you will be taxed as soon as you exercise it, i.e. the RSUs are converted to regular stocks of the company. That will be classified as a perquisite and will be taxed as per the tax bracket applicable in your case.
When I sell my vested shares, the money is deposited to my US broker account. Am I obliged to bring this money back to India or can I directly use it to invest in US stocks?
Dear Reader,
You can either invest in US shares or repatriate this money to India. Either reinvestment or repatriation shall have to be done in compliance with the new OI Rules. The timelines for repatriation are listed below:
• If an individual acquires shares that represent less than 10% of the company’s share capital, the individual will be required to repatriate any proceeds related to the securities within 180 days of receipt of such sale proceeds of the shares. This shall not apply if the amounts are reinvested by the individual in compliance with the ODI Regulations within the 180-day period.
• If an individual acquires shares that represent 10% or more of the company’s share capital, the individual will be required to repatriate the proceeds within 90 days of receipt of such sale proceeds of the shares.
If you wish to know more about this, please read our blog on Overseas Investment Through ESOP: OPI Under New OI Rules.
My RSU provided by my company are vested. company withheld 42% of shares for TAX and when i check the tax deducted in my pay slip it is 42% straight out, instead of India tax slab based on my income
My shares are traded in Netherlands(Amsterdam) exchange, kindly clarify did the tax deducted @ source country? and i cant claim any of the extra tax or can i do something in tax returns
Dear Reader,
Based upon the limited facts shared here, it is understood that you are an employee of an Indian Subsidiary and have paid 42% Tax in Netherlands. If your income is assessed in India (we believe you are filing ITR in India) your Tax liability might be lower. India has Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Netherlands. You can claim credit of Foreign Tax as per Rule 128 of the Income Tax Rules, 1962 at the time of filing ITR.
You may approach any professional in your area to assist you with this.
First Para says – This is given free of cost by the company but with some restrictions.
RSUs are not always free of cost. RSUs may given be given free of cost but generally they have exercise price upto face value.
Dear Reader,
You do not need to exercise an option in order to receive RSUs. RSUs are typically granted outright to employees, without requiring any payment or exercise.
ESOPs (Employee Stock Option Plans), do require the employee to exercise their options in order to receive shares of company stock. When an employee exercises an option, they purchase shares of company stock at a predetermined exercise price. Once the shares are purchased, the employee can either hold onto them or sell them on the open market.
RSUs, on the other hand, are usually granted without any exercise price. Instead, the employee receives a promise to receive company stock (as part of their compensation package) at a future date, subject to vesting conditions. Once the RSUs vest, the employee receives the shares of company stock directly, without needing to purchase them through an exercise.
It’s worth noting that RSUs do not have a face value like traditional stock options. Instead, their value is determined by the current market price of the company’s stock when the RSUs vest. This means that the employee may receive more or less than the original grant value, depending on how the company’s stock price performs over time.
After vesting of RSU, the shares are held in account in USA. Do the holding of these (not selling) needs to be reported in Schedule FA in ITR every year?
Dear Reader,
Your understanding is correct. The net holding of the foreign shares needs to be reported in Schedule FA in ITR every year till the time they are disposed off.
I was granted RSU’s from an Indian company not listed on the US exchange. At the time of issuing the RSU’s, the Indian government taxed the RSU’s prior to my vesting date. I had to pay 38K to receive the RSU’s. On my W2, it shows the full amount of the dollar value of the RSU’s although the money is still sitting with a broker in India and the share have not been sold. How does this get treated from a tax perspective, can I deduct the 38K that I already paid to the Indian government? Also, how can the US government tax me this as income when it’s still sitting in the Indian stock market. Appreciate any insight. Jim
Dear Reader,
Please note that tax is not deducted until the shares are vested. A mere right is not considered as perquisite or fringe benefit unless that right is exercised and shares are vested. To address your concern on deduction of tax prior to the vesting date, analysis of your grant agreement is a pre-requisite. You may connect with us for any professional assistance in this regard.
Your W2 shows the full value of the shares as the full value is the amount of Fringe benefit (or perquisites u/s 17 (2) in India). On the full value of the shares, you have paid the tax which shall also be reflected in your W2. You can utilize this tax amount of 38K to set off the tax liability arising on your total income. When we say total income, the income includes fringe benefit or perquisites too.
The tax is calculated on the income and residential status of the assessee and not on the origin of income.
Hi,
I have some RSU and the vesting method is grading. What if I have some capital loss instead of capital gain and its been more than 2 years of me holding those shares, my question is, can we club the loss for some share with the gain of others and tax amount will be on the addition of gain and loss ?
Does it work this way ?
Very good article, cleared most of my questions, just have this one.
Dear Reader,
Please note that if such shares are held for more than 24 months, they will be classified as Long Term Assets. We would like to bring to your kind notice the following provisions pertaining to Set off and Carry forward of losses under Income Tax Act.
As per Section 74 of Income Tax Act 1961,
a) the long-term capital loss must be set off only against income from long-term capital gains. However, short-term capital loss can be set off against income from long-term capital gains as well as short-term capital gains.
b) if the amount of loss cannot be set off entirely in one financial year, you are allowed to carry forward for 8 assessment years immediately following the assessment year in which the loss was first computed.
Thus, in case you want to set off long-term capital losses ,you can set off long-term capital gains only.
Thanks for your reply!
Thank you very much for the excellent Article Sir. Can you please clarify a couple of doubts for RSUs in case of an private limited company. 1. At the end of vesting period i.e. after satisfaction of the conditions by the employee can the company allot shares without even collecting the face value per share? 2. In the “sell to cover” concept who will be purchasing the shares from the employee. Thank you.
Dear Reader,
Yes, the Company can issue shares without collecting the face value. Further, the “sell to cover” concept typically involves an employee selling a portion of their company stock options or shares to cover the cost of exercising the options or acquiring the shares.
The transaction is usually facilitated by a brokerage firm or financial institution acting as a middleman. The shares are sold on the open market, and the proceeds are used to cover the cost of exercising the options or acquiring the shares.
The specific party or parties who purchase the shares will depend on market conditions at the time of the sale. It could be individual investors, institutional investors, or market makers. The brokerage firm or financial institution typically handles the logistics of the sale and ensures that the transaction is executed in a timely and efficient manner.
Hi, can i park the funds after selling the shares in captial gains account to purchase property, to avoid paying captial gains
Dear Reader,
Subject to the provisions of 54F of the Income Tax Act, 1961 you can purchase residential property to avoid capital gains. Since these shares shall be treated as unlisted shares (not listed in India), they will be classified as immovable capital assets as per Section 2 (14) of the Income Tax Act. So, the period of holding will be determined as per its classification and you should take care that only long term capital gains can be exempted as per Section 54F.
Beautiful and lucid by giving examplesd
Dear Reader,
Thanks for the encouraging words.
Very nicely explained ! Thanks
Thanks for appreciating.