Foreign RSU India Tax Guide: Perquisite at Vest, Capital Gains, Form 67 FTC & Schedule FA

If you are an Indian resident — whether a returning NRI on ROR status or an employee of an Indian subsidiary of a US parent — receiving RSUs from a foreign-listed employer, the Indian tax treatment is more layered than most people realise. The grant is a non-event. The vest is a taxable perquisite. The sale generates capital gains. And you have two separate annual compliance obligations that most salaried employees overlook entirely: Form 67 for foreign tax credit and Schedule FA for foreign asset disclosure.

This guide walks through each stage with the governing provisions and a worked numerical example.

Stage 1: Grant Date — Zero Tax Liability

The grant of RSUs creates no income tax event in India. An RSU is a contractual promise by the employer to deliver shares on a future date, contingent on continued employment or vesting conditions. Until the shares vest, the employee has no proprietary right to them. There is no cash or property received, no "benefit" that can be quantified, and nothing that falls within the definition of income under s.2(24) of the Income Tax Act 1961 ("ITA 1961").

Do not let payroll, HR, or well-meaning finance teams convince you otherwise. Grant-date taxation would require the employee to pay tax on a speculative future benefit that may never materialise if the employee leaves or the stock price falls to zero.

However, grant-year disclosure in Schedule FA is a separate matter — addressed below.

Stage 2: Vest Date — Perquisite Income Under s.17(2)(vi)

The vest date is the first taxable event. When shares are delivered to the employee upon vesting, this is treated as a perquisite arising from employment under s.17(2)(vi) ITA 1961, which specifically covers the value of any specified security or sweat equity share allotted or transferred, directly or indirectly, by the employer to the employee.

The valuation of this perquisite is governed by Rule 3(8) of the Income Tax Rules 1962, which provides that the fair market value (FMV) of listed shares is the average of the opening and closing price of the share on a recognised stock exchange on the date the shares are allotted or transferred to the employee. For shares listed on a foreign stock exchange (NYSE, NASDAQ), the FMV is taken at the opening price on the vesting date, converted to INR at the telegraphic transfer buying rate published by the State Bank of India (SBI TT buying rate) on that date.

The formula is straightforward:

Perquisite value = (FMV per share in USD × number of shares vesting) × INR/USD exchange rate

This amount is added to the employee's salary income for the year and is subject to TDS by the employer. In practice, where the employer is an Indian entity (subsidiary or branch), the payroll department should factor in the perquisite at vest and deduct TDS accordingly. If the employer is a pure foreign entity with no Indian TDS obligation, the employee must self-declare the perquisite in the ITR as salary income and pay advance tax.

The cost of acquisition for future capital gains computation is this FMV at vest — not the grant date price, not zero, and not the exercise price (RSUs have no exercise price). This point is foundational and is revisited below.

Stage 3: Capital Gains on Sale

When the employee subsequently sells the shares, the gain is computed as:

Capital gain = Sale proceeds − Cost of acquisition (FMV at vest)

The holding period for determining short-term versus long-term starts from the vest date (date of allotment), not the grant date.

Short-Term Capital Gains (≤12 months from vest)

If shares are sold within 12 months of vesting, the gain is a short-term capital gain (STCG) taxable under s.111A ITA 1961 at 20% (plus applicable surcharge and cess). This rate applies because the shares are listed on a recognised stock exchange — even a foreign exchange qualifies as a recognised stock exchange for this purpose under the broad interpretation now settled by CBDT guidance. Prior to Finance Act 2024, this rate was 15%; it was increased to 20% effective 23 July 2024.

Long-Term Capital Gains (>12 months from vest)

If shares are held beyond 12 months from vesting, the gain is a long-term capital gain (LTCG) taxable under s.112A ITA 1961 at 12.5% (plus surcharge and cess) on the amount exceeding ₹1,25,000 in the aggregate during the financial year. Below ₹1,25,000, the LTCG is fully exempt. Finance Act 2024 raised both the rate (from 10%) and the exemption threshold (from ₹1,00,000), effective 23 July 2024.

The grandfathering provisions under the proviso to s.112A (FMV as on 31 January 2018) do not apply to foreign-listed shares that were not listed on Indian exchanges as of that date.

Currency gain element: if the USD has appreciated between vest and sale, the appreciation embedded in the INR proceeds is not separately treated — the entire gain in INR terms is treated as capital gain. There is no carve-out for foreign exchange fluctuation in the capital gains computation for equity shares.

Stage 4: Form 67 — Foreign Tax Credit Under Rule 128

US employers (or their brokers, such as E*TRADE or Schwab) typically withhold US federal income tax on RSU income at vest at the supplemental wage withholding rate of 22% (or 37% for large amounts). Additionally, state income tax may be withheld.

Indian residents can claim a foreign tax credit (FTC) for taxes paid to the US on income that is also taxable in India, under Rule 128 of the Income Tax Rules 1962, read with the India-US Double Tax Avoidance Agreement (DTAA), specifically Article 15 (Dependent Personal Services), which governs taxation of employment income.

The FTC is the lower of:

• The foreign tax actually paid and remitted (US federal tax — state tax is generally excluded unless specifically covered)


• The Indian income tax attributable to the same income (computed proportionally as: Indian tax on gross total income × foreign income / gross total income)

Critical procedural point: Form 67 must be filed on or before the due date for filing the ITR for the relevant assessment year. Filing Form 67 after the ITR due date — even if the ITR itself is timely — is held to be a bar to claiming FTC, as confirmed in multiple ITAT decisions. This is a hard deadline, not a soft one. File Form 67 electronically on the income tax portal (e-filing → Income Tax Forms → Form 67) before submitting the ITR.

The Form requires the country of source (US), type of income (salary/perquisite), foreign income in INR, foreign tax withheld in INR, and the provision of the relevant DTAA Article under which credit is claimed.

Stage 5: Schedule FA — Foreign Asset Disclosure

All resident individuals (ROR and RNOR for certain items) who hold foreign assets at any point during the financial year must disclose them in Schedule FA of the ITR (Schedule for Foreign Assets and Foreign Source Income). Non-disclosure attracts penalties of ₹10,00,000 per year under s.43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 ("Black Money Act").

The relevant parts of Schedule FA are:

Part A2 — Foreign Custodial Accounts: disclose the US brokerage account (E*TRADE, Schwab, Fidelity, etc.) where the vested shares are held. Provide the financial institution name, account number, country (US), closing balance at year-end converted to INR.

Part B — Foreign Equity and Debt Interest: disclose the shares held in the foreign listed company. For each tranche of shares (each vest), provide the company name, ISIN, country, date of acquisition, initial investment value (FMV at vest in INR), and closing value.

Unvested RSUs (granted but not vested): there is interpretive ambiguity here. A strict reading of Schedule FA requires disclosure of "any interest in any entity located outside India" — which could cover unvested RSUs as a beneficial contractual interest. The conservative and recommended approach is to disclose unvested RSU grants in Schedule FA Part B (with initial value as zero, since no cost has been incurred and no property has been transferred). The IRS Form 3921 issued for incentive stock options does not directly apply to RSUs, but it serves as a useful reference document for the grant details.

Shares that were sold during the year and no longer held at year-end must still be disclosed in Schedule FA for that year, with the sale reported in the "Amount of income derived from the asset" column.

Worked Example

Facts: Siddharth, an ROR Indian resident employed by the Indian subsidiary of a Nasdaq-listed US company. 100 RSUs vest on 15 September 2025. FMV at vest: USD 50 per share. Exchange rate (SBI TT buying): ₹83 per USD. He sells all 100 shares on 15 December 2026 (15 months later) at USD 60 per share. Exchange rate at sale: ₹84 per USD.

Step 1 — Perquisite at vest (AY 2026-27):

• Perquisite = 100 × $50 × ₹83 = ₹4,15,000


• This is added to salary income for FY 2025-26 and reported in ITR-2 under "Salary" head


• TDS should have been deducted by the employer on this amount


• Cost of acquisition for capital gains = ₹4,15,000

Step 2 — Capital gains on sale (AY 2027-28):

• Sale proceeds = 100 × $60 × ₹84 = ₹5,04,000


• Cost of acquisition = ₹4,15,000


• LTCG = ₹5,04,000 − ₹4,15,000 = ₹89,000


• LTCG < ₹1,25,000 threshold → nil LTCG tax under s.112A

Step 3 — Form 67 (AY 2026-27 for perquisite year):

• Assume US withheld 22% supplemental rate on $4,150 equivalent = $913 (approx. ₹75,779)


• Indian tax on ₹4,15,000 at marginal rate of 30% = ₹1,24,500


• FTC = min(₹75,779, ₹1,24,500) = ₹75,779


• File Form 67 before 31 July 2026 (or extended ITR due date, if applicable)

Step 4 — Schedule FA:

• FY 2025-26: disclose brokerage account in Part A2, disclose 100 shares in Part B (acquired 15 Sep 2025, initial value ₹4,15,000, year-end value = 100 × closing share price × ₹83)


• FY 2026-27: disclose same shares; report sale proceeds as income in Part B

The Single Most Common Error

Employees — and many payroll teams — incorrectly use the grant date price as the cost of acquisition for capital gains. If the grant was at $20 per share and the vest was at $50, using $20 inflates the capital gain by $30 per share and generates an entirely avoidable tax liability. The correct cost of acquisition is always the FMV at vest (the perquisite value already brought to tax). Taxing the same economic gain twice — once as perquisite and again as capital gain — is the error this rule is designed to prevent.

Key Takeaways

• RSU vesting is a perquisite event under s.17(2)(vi) ITA 1961; FMV at vest converted to INR at SBI TT rate is the perquisite value added to salary.
• Cost of acquisition for capital gains is always FMV at vest; never grant date price, never zero.
• LTCG above ₹1,25,000 at 12.5% under s.112A (>12 months); STCG at 20% under s.111A (≤12 months) — both per Finance Act 2024 rates.
• Form 67 under Rule 128 must be filed electronically before the ITR due date to claim FTC for US federal tax withheld; missing this deadline forfeits the credit.
• Foreign brokerage accounts and share holdings (including unvested grants, conservatively) must be disclosed annually in Schedule FA or face ₹10L+ penalties under the Black Money Act.

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See Also

• India DTAA Guide: How to Use Tax Treaty Rates, TRC Requirements, and Form 10F
• NRI Tax Filing Guide: ITR-2 for Non-Resident Indians AY 2025-26
• Property Capital Gains: Indexation vs 12.5% Tax in 2026

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