Restricted Stock Units (RSU) Taxation

How RSUs are taxed at vesting and on sale - and the foreign asset disclosures that come with them.

Knowledge Centre

RSUs are taxed twice in two different ways - once as salary when they vest, and again as capital gains when you sell. Most of the confusion we see from clients holding RSUs comes from not separating these two events. If you also hold foreign assets or receive RSUs from an overseas employer, see our article on Foreign Income Tax Compliance in India for the full disclosure picture.

A Note on This Article: Some terminology, provisions, and references in this article may still reflect the Income-tax Act, 1961 framework. The Income-tax Act, 2025 came into force on 1 April 2026 and has renumbered sections and revised certain terms and forms - where this article hasn't yet been fully updated to the new framework, the 1961-era references still apply as written. See our Income Tax Act 2025 - Overview article for the full picture of what's changed.

Understanding RSUs

A Restricted Stock Unit is a form of employee compensation where an employer grants shares of its stock to an employee, subject to a vesting schedule. Unlike a stock option, there is no purchase price to pay - the shares are simply allotted to you once the vesting conditions (usually a service period) are met. Until vesting, you hold a promise of shares, not the shares themselves, and the unit cannot be sold or transferred.

Vesting and Taxation of RSUs

When RSUs vest, the fair market value (FMV) of the shares on the vesting date is treated as part of your salary income for that year.
This amount is taxed at your applicable income tax slab rate, exactly as the rest of your salary is.
The FMV on the vesting date then becomes the cost of acquisition (cost basis) of those shares for every future capital gains calculation.

This is the point that trips up most first-time RSU holders: tax is paid in the year of vesting, irrespective of whether you sell the shares or continue to hold them. Holding on does not defer the salary-component tax. For context on how slab rates apply to your total income, see our Income Tax FAQs.

Step 1

Grant Date

RSUs are awarded. No tax event - you do not yet own the shares.

Step 2

Vesting Date

Shares are allotted to you. FMV on this date is taxed as salary, and also becomes your cost basis.

Step 3

Sale Date

Capital gains or loss is computed as sale price less the cost basis fixed at vesting.

Worked Example

100 RSUs, vesting one year after grant

Grant Date: 100 RSUs granted to the employee.
Vesting Date: RSUs vest one year later, when the share price is ₹1,000. FMV at vesting = ₹1,000 × 100 = ₹1,00,000.
Tax on Vesting: ₹1,00,000 is added to salary income and taxed at the employee's applicable slab rate for that financial year.
Cost of Acquisition: Since tax has already been paid on the FMV at vesting, that same value - ₹1,000 per share - becomes the cost of purchase for the RSUs going forward.

Selling RSUs

When the vested shares are eventually sold, the cost basis fixed at vesting - not the original grant value - is used to calculate the capital gain or loss. If the sale price is higher than the vesting-date FMV, the difference is a capital gain; if lower, it is a capital loss. For advance tax deadlines and how to settle any outstanding liability before filing, see our ITR Filing Essentials guide.

Why no TDS can be claimed on the tax already paid at vesting: RSUs are received free of cost, but become taxable the moment they vest. The employer includes the vested value in your salary and deducts tax in the year of vesting itself - this is salary tax already settled, and is separate and distinct from any capital gains tax due later on sale.

Capital Gains Tax

Whether the gain on sale is taxed as short-term or long-term capital gains depends on the holding period measured from the vesting date - not the grant date. The applicable rate and holding-period threshold follow the standard capital gains rules for the relevant category of shares. When comparing which tax regime is more beneficial for your overall income, our article on the New Tax Regime vs Old is a useful starting point.

Taxation on Sale of Foreign Company Stock in India

Shares of a foreign company are treated as unlisted securities for Indian tax purposes, even if they are listed on a foreign exchange.
Both the purchase value and the sale value must be converted into Indian Rupees for the gains computation.
The actual date of sale of the shares is taken as the date of transfer - not the date on which sale proceeds are remitted or withdrawn to your bank account.
Foreign RSU holdings must also be disclosed in Schedule FA of your ITR. For a full overview of Schedule FA and foreign asset reporting obligations, see our article on Foreign Income Tax Compliance in India.

RSU taxation gets layered quickly once multiple vesting tranches, currency conversion, and foreign asset reporting (Schedule FA) enter the picture.