How are RSUs and ESPP taxed in India?
Last reviewed: 4 November 2026 · Noema Research · 5 min read
Most employees think RSUs are taxed once, and many pay tax twice on the same rupees. In India, RSUs and ESPP shares are taxed at two events. At vest, the market value of the shares is added to your salary and taxed at your slab rate, with TDS through payroll. At sale, only the gain above the market value at vest is taxed: at 12.5% if you held the shares for more than 24 months, or at your slab rate if you held them for 24 months or less. Your cost is the value at vest, never zero. On 100 shares vesting at $150 and sold at $200 after 30 months, the salary tax is ₹3,82,500 and the sale tax is ₹60,625. Rules for planning, not tax advice.
Create an account to track your employer shares alongside your other goals.
The two tax events: vest and sale
People often see one big deduction on the payslip and assume the shares are now fully taxed. That deduction covers only the first event. The second comes when you sell.
| Stage | What happens | Tax |
|---|---|---|
| Grant | You are promised shares | None |
| Vest (RSU) or purchase (ESPP) | Shares become yours | Market value minus price paid, taxed as salary at slab, TDS by employer |
| Hold | You own foreign shares | Report in Schedule FA each year; dividends taxed at slab |
| Sale after more than 24 months | Long term gain | 12.5% on sale value minus value at vest |
| Sale within 24 months | Short term gain | Slab rate on sale value minus value at vest |
Your cost is the value at vest
The most expensive RSU mistake is treating the cost of the shares as zero because you paid nothing. The value at vest was already taxed as salary, so it is your cost. Use the market value on the vest date, converted at the telegraphic transfer buying rate under Income Tax Rules 26 for the perquisite and 115 for capital gains, from your payslip or Form 16.
A worked example in rupees
Priya has 100 RSUs vest at $150 a share when the rate is ₹85 per dollar. The perquisite is ₹12,75,000, taxed as salary at 30%, so ₹3,82,500. She sells all 100 after 30 months at $200 when the rate is ₹88. Sale value is ₹17,60,000; her cost is ₹12,75,000; the long term gain is ₹4,85,000, taxed at 12.5%, so ₹60,625. Total tax over both events: ₹4,43,125. Estimates, not predictions.
| Event | Value | Taxable amount | Tax |
|---|---|---|---|
| Vest | ₹12,75,000 | ₹12,75,000 as salary | ₹3,82,500 |
| Sale | ₹17,60,000 | ₹4,85,000 long term gain | ₹60,625 |
| Total | ₹4,43,125 |
The double tax mistake
If Priya enters zero as her cost, the whole ₹17,60,000 looks like gain. At 12.5% that is ₹2,20,000 of tax on the sale, ₹1,59,375 more than she owes, because ₹12,75,000 of it was already taxed as salary. Always enter the vest value as cost. Estimates, not predictions.
How ESPP is different
ESPP buyers often think the discount is a bonus with no tax. The discount is the perquisite. Example: 50 shares bought at $170 when the market value is $200, at ₹85 per dollar. The perquisite is 50 × $30 × ₹85 = ₹1,27,500, taxed as salary at slab. Your cost for the sale is the market value on the purchase date, ₹8,50,000. Estimates, not predictions.
Claiming credit for tax paid abroad
Holding RSUs also means reporting them every year. See how to report foreign stocks and RSUs in Schedule FA.
- Check your foreign statement for tax withheld, usually on dividends.
- Fill Form 67 on the income tax portal on or before your ITR due date.
- Claim the foreign tax credit in your ITR, limited to the Indian tax on that income.
- Keep the foreign statement and payslip as proof.
Common mistakes
- Entering zero as the cost of RSU shares.
- Applying the 12 month equity rule to foreign shares; the line is 24 months.
- Forgetting the shares sold to cover tax at vest are also a sale.
- Missing Form 67, which loses the foreign tax credit.
- Leaving RSUs out of Schedule FA.
FAQ
How is RSU taxed in India?+
At two events. At vest, the market value is taxed as salary at your slab rate. At sale, the gain above the vest value is taxed at 12.5% if held more than 24 months, or at your slab rate if held 24 months or less.
How is the ESPP discount taxed?+
The difference between the market value on the purchase date and the price you paid is a perquisite, taxed as salary at your slab rate. Your cost for the later sale is the market value on the purchase date.
What is sell to cover?+
Your employer sells some vested shares to pay the TDS on the perquisite. That sale is a short term sale; any gain or loss is the sale price minus the vest value, usually small, and it still goes in your ITR.
Do I need Form 67 for RSUs?+
Only if tax was paid abroad, usually on dividends, and you want credit for it in India. File Form 67 on or before your ITR due date.
Related answers
- How do I report foreign stocks and RSUs in Schedule FA?
What goes in Schedule FA for foreign stocks and RSUs, and common filing mistakes. Not tax advice.
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