Foreign RSU Vest While in India: Perquisite u/s 17, TDS, Schedule FA and Form 67 FTC
RSU vest income is taxable in India if you are resident, or if the services behind the vest were rendered in India under s.9(1)(ii) — and once ROR, the whole perquisite is taxable wherever the work was done. File Form 67 before the ITR for the foreign tax credit and disclose the shares in Schedule FA.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
RSU vest income is taxable in India when you are a resident, or when the services that produced the vest were rendered in India — and once you are ROR, the entire perquisite is taxable regardless of where the work was done. For an NRI, the perquisite is taxed in India only to the extent the services were rendered here, under the source rule in s.9(1)(ii). Add Form 67 (filed before the ITR) for the foreign tax credit, and Schedule FA to disclose the shares — and you have the complete compliance map.
When RSU Vest Income Is Taxable in India
The status at the vest date matters, not the grant date. An RSU grant is not a taxable event; the vest creates the perquisite under s.17(2)(vi) of the Income Tax Act 1961, valued at the fair market value on the vest date converted to INR at the SBI TT buying rate (Rule 3(8) of the Income Tax Rules 1962).
Worked Example: Nikhil's Two Vestings
Nikhil, an Indian citizen, worked in the US until March 2024 and was NRI through FY 2023-24. He returned to India permanently in April 2024 and became ROR in FY 2024-25.
Vest 1 — FY 2023-24, while NRI, all services in the US:
- 100 RSUs vest at FMV $50 × ₹83 = ₹4,15,000.
- Services rendered entirely in the US → not taxable in India (outside s.9(1)(ii)). No Indian TDS, no advance tax.
- Cost basis for future sale: ₹4,15,000.
Vest 2 — FY 2025-26, while ROR:
- 100 RSUs vest at FMV $60 × ₹83 = ₹4,98,000.
- Nikhil is ROR → the entire ₹4,98,000 is taxable in India as salary, regardless of where the work was done.
- US withheld 22% supplemental tax: $1,320 × ₹83 = ₹1,09,560.
- Indian tax at 30% marginal rate on ₹4,98,000 = ₹1,49,400.
- Foreign tax credit (Form 67, Rule 128): min(₹1,09,560, ₹1,49,400) = ₹1,09,560.
- Net India tax = ₹1,49,400 − ₹1,09,560 = ₹39,840.
Schedule FA for AY 2026-27 (FY 2025-26): Nikhil discloses both lots in Part B — 100 shares at cost ₹4,15,000 (the NRI-year vest) and 100 shares at cost ₹4,98,000 — because from the ROR year all foreign shares held are disclosed, even those that vested while he was NRI and were never taxed in India.
The Source Rule for NRIs (s.9(1)(ii))
For an NRI whose RSUs vest during employment abroad, India's only claim is on the service element rendered in India. If a portion of the employment period between grant and vest was spent working in India, the proportionate perquisite may be taxable in India even for an NRI. Multinational employees on hybrid assignments are the classic case — a US employer with an Indian-domiciled employee who logs India workdays during the vesting period.
Form 67: The FTC Filing Deadline
The foreign tax credit for US federal tax withheld at vest is claimed through Form 67 under Rule 128:
- File it on or before the ITR due date for the year — filing Form 67 late forfeits the credit, even if the ITR itself is timely.
- It is a precondition, not an optional attachment. Without it, the FTC claim in the ITR is rejected.
- The credit is the lower of the US tax paid and the Indian tax attributable to the same income.
Schedule FA: Disclose the Shares
From the first ROR year, disclose all foreign shares held during the year in Schedule FA (ITR-2/ITR-3):
- Part A2 — the foreign brokerage account (Schwab, E*TRADE, Fidelity) with its peak balance during the year.
- Part B — each lot of RSU shares with the company name, ISIN, acquisition date and investment at cost (FMV at vest in INR).
- Unvested RSUs — report the grant where you hold a beneficial interest; the conservative position is to disclose unvested grants with a nil value.
Non-disclosure attracts a penalty of ₹10 lakh per asset per year under s.43 of the Black Money Act.
Employer TDS: Who Should Deduct?
If an Indian entity or Indian branch processes your payroll, it should deduct TDS on the perquisite at vest. In practice, many multinational Indian subsidiaries miss the RSU perquisite entirely because the equity is administered abroad. When that happens:
- The employee must self-declare the perquisite in the ITR as salary income.
- Advance tax is payable on the perquisite (and any other non-TDS income) in quarterly instalments — a common hidden liability for ROR employees.
- Check Form 26AS: if no TDS appears for the perquisite, plan for the advance-tax shortfall.
What Happens When You Sell the Shares
- Cost basis: FMV at vest (the perquisite value already brought to tax) — never the grant price.
- Holding period: counts from the vest date.
- Rates (FY 2025-26): STCG on listed foreign shares at 20% (s.111A, ≤12 months); LTCG above ₹1,25,000 at 12.5% (s.112A, >12 months).
- Report the gain in Schedule CG and the sale in Schedule FA's income column.
Changed FY 2025-26: For FY 2025-26, the perquisite rule under s.17(2)(vi) and the Form 67/Rule 128 FTC framework continue unchanged. The trigger most returning NRIs miss is the status flip: vests that occurred while ROR are fully taxable in India even if the employing company is 100% foreign.
FAQ
Q1: Are RSUs that vested while I was an NRI taxable in India?
Only if the services behind the vest were rendered in India, per the source rule in s.9(1)(ii). Vests during entirely foreign service while NRI are not taxable in India. Once you are ROR, vests are fully taxable regardless of where the work was done.
Q2: When does RSU income become taxable in India?
At vest, not grant. The fair market value on the vest date, converted at the SBI TT buying rate, is a perquisite under s.17(2)(vi) added to salary for that year.
Q3: Do I need to file Form 67 for US RSU tax?
Yes, if you want the foreign tax credit for US federal tax withheld at vest. File Form 67 under Rule 128 before the ITR due date; filing late forfeits the credit.
Q4: Must I disclose RSU shares in Schedule FA as a returning NRI?
From your first ROR year, yes. Disclose the foreign brokerage account (Part A2) and the share lots (Part B) at investment at cost. The obligation applies to all foreign shares held during the year, including lots that vested while you were NRI.
Q5: My employer didn't deduct TDS on my RSU vest. What should I do?
Declare the perquisite in your ITR as salary and pay advance tax on the shortfall. Many foreign-administered RSU plans are missed by Indian payroll; the employee remains liable for the tax and interest.
Q6: What is the cost basis for RSU capital gains?
The FMV at vest (the amount already taxed as perquisite), never the grant price. Using the grant price inflates the gain and creates avoidable tax.
Q7: Are unvested RSUs reported in Schedule FA?
The conservative position is to disclose unvested grants where you hold a beneficial interest, with a nil value. The exact CBDT position should be confirmed before filing.
Use our Foreign RSU Calculator to compute the perquisite, FTC, Schedule FA values and capital gains on sale.
Sources
- Section 17(2)(vi), Income-tax Act 1961 — perquisite on specified securities/RSUs.
- Rule 3(8), Income-tax Rules 1962 — FMV valuation at vest.
- Section 9(1)(ii), Income-tax Act 1961 — source-based taxation of employment income.
- Rule 128 and Form 67, Income-tax Rules 1962 — foreign tax credit.
- Schedule FA, ITR-2/ITR-3; Section 43, Black Money Act 2015 — disclosure and penalty.
- Sections 111A and 112A, Income-tax Act 1961 — STCG/LTCG on listed shares.
The status at vest decides the tax — know your residency year before you rely on a foreign pay slip. Book a consultation at harunraaj.com.
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