ESOP/RSU and Wrong ITR: Salary Perquisite + CG Forces ITR-2 and Schedule FA Checks

Short answer: If you received ESOPs or RSUs, ITR-1 (Sahaj) is always wrong — it has no capital-gains schedule and no Schedule FA. The minimum correct form is ITR-2, which carries: Schedule S (salary incl. the perquisite from Form 16), Schedule CG (capital gain at sale, with cost = FMV at vest under s.49(2AA)), Schedule FA (foreign shares, if the employer is foreign), Schedule TR (foreign tax credit from the 1042-S/withholding), and a separately-filed Form 67 (before the ITR due date). The most common error: reporting the full sale price as the capital gain without deducting the FMV cost basis — which double-taxes you.

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Why ITR-1 is out

ITR-1 is restricted to salary, one house property, and other sources up to specified limits — with no Schedule CG and no Schedule FA. Once you have:

• A capital gain on sold ESOP/RSU shares; or
• A foreign asset to disclose (foreign employer's shares, a US brokerage account);

…you are outside ITR-1. Filing it anyway invites a s.139(9) defective-return notice and the 15-day refiling drill.

The ITR-2 checklist

If you have business income (F&O, consultancy), the form escalates to ITR-3 — which includes all of the above schedules plus Schedule BP.

Worked example: Kabir's RSU year

Persona: Kabir, salaried, FY 2025-26. RSU vest perquisite ₹4,00,000 (Form 16 Part B). He sold shares mid-year: sale ₹6,00,000, cost basis (FMV at vest) ₹4,00,000 → capital gain ₹2,00,000. He holds remaining vested shares worth ₹3,00,000 in a US brokerage. US tax withheld on the vest: ₹60,000 (1042-S).

What he files — ITR-2:

• Schedule S: salary ₹16,00,000 + perquisite ₹4,00,000 = ₹20,00,000.


• Schedule CG: gain ₹2,00,000 (sale ₹6,00,000 − cost ₹4,00,000 under s.49(2AA)), short-term or long-term per holding period.


• Schedule FA: the US brokerage account and the vested shares held (peak value during the year).


• Schedule TR: foreign income ₹4,00,000, foreign tax ₹60,000, credit claimed.


• Form 67: filed on the portal before the ITR — without it, the ₹60,000 credit is lost.

The error he avoided: if he had shown Schedule CG with cost = ₹0, the gain would have been ₹6,00,000 instead of ₹2,00,000 — taxing the ₹4,00,000 perquisite a second time.

The NRI nuance: if Kabir sold shares while resident in India and later became a non-resident, special rules on exit taxation and Schedule FA apply — residency on the date of each event matters.

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Already filed ITR-1? The defective-return path

If you filed ITR-1 and the CPC later flags it under s.139(9) for missing capital-gains or foreign-asset schedules, do not panic — the notice is a fix-it flag, not a penalty. The drill:

• Confirm the defect — the intimation cites the missing schedules (Schedule CG, Schedule FA);
• Prepare the correct return — ITR-2 (or ITR-3 if you have business income) with the perquisite in Schedule S, the gain in Schedule CG, and foreign assets in Schedule FA;
• File the corrected return within 15 days — the response window under s.139(9);
• Respond to the notice on the portal with the new acknowledgment number.

If you ignore the notice, the return is treated as never filed — refunds are blocked, loss carry-forward under s.80 is forfeited, and a s.234F fee can apply. Fifteen days is short but workable when the numbers are already on hand.

Documents to gather before filing

• Form 16 Part B — the perquisite and salary figure for Schedule S;
• Vest statement + sale contract note — FMV at vest and sale price for Schedule CG;
• Brokerage statement / grant portal — foreign shares and peak balances for Schedule FA;
• 1042-S and W-8BEN — US withholding for Schedule TR / Form 67.

Assemble these before opening the ITR utility; the form moves faster and the numbers stay internally consistent.

The headline error, restated

The single most common filing error is not the form — it is the cost basis. Report the sale gain as sale price − FMV at vest, never the full sale price, and never ₹0. Get that one number right and the rest of the return — form, schedules, foreign assets — follows the same disciplined path.

Frequently Asked Questions

1. Which ITR form do I use if I have ESOP/RSU income?

ITR-2 at minimum (salary + capital gains + Schedule FA). If you also have business income, use ITR-3. ITR-1 is always wrong.

2. What is the cost basis to enter in Schedule CG for RSUs?

The FMV at vest under s.49(2AA) — not ₹0 and not the grant price. Entering ₹0 double-taxes the perquisite.

3. Do I need Schedule FA for a foreign employer's RSUs?

Yes, if you are an ROR holding foreign shares or a foreign brokerage account. Disclose at peak value; non-disclosure risks a ₹10 lakh penalty per asset per year (Black Money Act s.43).

4. What is Form 67 and when do I file it?

Form 67 claims the foreign tax credit (Rule 128) and must be filed electronically on or before the ITR due date. Late filing forfeits the credit.

5. I sold RSUs and now I'm an NRI. Which rules apply?

Special rules apply to non-residents on the sale of shares acquired as a resident, including possible exit-tax provisions and Schedule FA requirements. — the treatment depends on your residency on each event date.

6. What happens if I file ITR-1 with ESOP/RSU income?

The return is defective under s.139(9) — the CPC flags the missing capital-gains and foreign-asset schedules. You get 15 days to refile in ITR-2/ITR-3; ignore it and the return is treated as never filed.

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File the right form with the right cost basis

Before you submit, run your ESOP/RSU details through the Defective Return Validator to confirm the form and schedules, and the ESOP Tax Calculator to compute the s.49(2AA) cost basis and the real capital gain.

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Last verified: 2026-08-08.
Sources: Sections 17(2)(vi), 45, 48, 49(2AA), 90, 139(9) ITA 1961; Income-tax Rules, 1962 (Rules 12, 128); ITR-2/ITR-3 schedules; Black Money Act 2015 (s.43).
Reviewer: pending CA sign-off. Draft status — do not publish before CA review.: NRI sale of shares acquired as a resident.

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