Understanding RSUs

A restricted stock unit (RSU) is a form of employee compensation where an employer grants shares of its stock to an employee. However, the employee can only sell these shares after a predetermined vesting period.

Vesting and Taxation of RSUs:

1. When RSUs vest, the fair market value (FMV) of the shares on the vesting date is considered part of your salary income.
2. This amount is taxed according to your income tax slab rate for that financial year
3. The FMV on the vesting date becomes the cost of acquisition (or cost basis) of the shares.

Example:

1. Grant Date: You are granted 100 RSUs.
2. Vesting Date: One year later, the RSUs vest when the share price is INR 1,000 per share. Therefore, the FMV at vesting is INR 1,000 * 100 = INR 100,000.
3. Taxation on Vesting: The value of INR 100,000 is treated as part of your salary and is taxed according to your income tax slab rate for that financial year.
4. Cost of Purchase of RSUs: You have already paid tax on the vesting date, calculated based on the FMV at that time. Therefore, the FMV at the date of vesting becomes the cost of purchase for the RSUs. INR 1000 will be cost of purchase of RSUs

Selling RSUs:

When you sell the vested RSUs, the cost basis the FMV at the time of vesting) is used to calculate capital gains or losses.

Why No TDS Can Be Claimed on Tax Paid on Vested Shares When Sold

You receive RSUs for free, but they are subject to tax when they vest. The company includes the value of the vested RSUs in your salary and pays tax in the year of vesting.

Capital Gains Tax

Based on the holding period after vesting (short-term vs. long-term).

Taxation of Sale of Foreign Company Stock in India

1.     Foreign company stocks are treated as unlisted in India.

2.     Each purchase and sale value should be converted to Indian Rupees.

3.     The actual date of sale of shares will be considered as the date of sale, not the date when you withdraw the amount.