RSU Taxation in India: Vest (Salary) vs Sale (Capital Gains) Timeline with Stepped-Up Cost
RSUs are taxed in two stages: at vest, the FMV on vest date is a perquisite under Section 17(2)(vi) taxed as salary with employer TDS; at sale, the gain over FMV at vest is capital gains. Ananya's 100 RSUs at $40 vest and $55 sale after 14 months show how the s.49(2AA) stepped-up cost prevents double taxation.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Short answer: Restricted Stock Units (RSUs) are taxed in two separate events. At vest, the fair market value (FMV) of the shares is a perquisite under s.17(2)(vi) ITA 1961, added to salary, reported in Form 16 Part B, and covered by employer TDS under s.192. At sale, the gain over that same FMV is a capital gain under s.45, computed with a cost basis equal to the FMV on vest date (the stepped-up cost under s.49(2AA)). For Indian-listed shares, gains within 12 months are short-term (20% under s.111A if STT is paid), and gains after 12 months are long-term (12.5% under s.112A, with a ₹1.25 lakh exemption). Ananya's example below makes the timeline concrete.
Changed FY 2025-26: For transfers on or after 23 July 2024, the STCG rate on STT-paid listed equity is 20% (up from 15%) and the LTCG rate is 12.5% with a ₹1,25,000 exemption (up from 10%/₹1,00,000) under the Finance (No. 2) Act, 2024. RSU sales in FY 2025-26 use these rates.
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The two-stage timeline
The two events never merge. Taxing the vest value as salary and then taxing the same value again at sale is exactly what s.49(2AA) prevents — your cost of acquisition at sale is the FMV already taxed as a perquisite.
Sale-leg rates at a glance
Worked example: Ananya's 100 RSUs
Persona: Ananya, an Indian-resident employee of a Nasdaq-listed company. 100 RSUs vest on 10 September 2025; FMV on vest date $40. She sells all 100 on 12 November 2026 at $55 — about 14 months after vest. Exchange rate ₹84 = $1 (held constant for clarity).
Stage 1 — Vest (FY 2025-26, AY 2026-27):
- Perquisite = 100 × $40 × ₹84 = ₹3,36,000
- Added to salary; employer deducts TDS; shown in Form 16 Part B under perquisites.
- Cost of acquisition for later sale = ₹3,36,000 (s.49(2AA)).
Stage 2 — Sale (FY 2026-27, AY 2027-28):
- Sale proceeds = 100 × $55 × ₹84 = ₹4,62,000
- Less cost of acquisition (FMV at vest) = ₹3,36,000
- Capital gain = ₹1,26,000
Stage 3 — Rate:
- Held ~14 months. Under the 12-month interpretation applied to foreign RSUs, the gain is long-term at 12.5% under s.112 (foreign shares carry no STT, so the s.112A ₹1.25 lakh exemption does not apply): ₹1,26,000 × 12.5% = ₹15,750.
- But: under the strict s.2(42A) reading, shares of a foreign company not listed on an Indian recognised exchange are long-term only after 24 months; a sale at 14 months would be short-term at slab rate. Confirm the holding-period position for foreign-listed RSUs before relying on either outcome.
Step 4 — What is NOT taxed: the ₹3,36,000 perquisite is not taxed again at sale. Only the ₹1,26,000 appreciation is. That is the s.49(2AA) stepped-up cost at work.
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The grant year: a non-event
Nothing is taxable at grant. When the RSUs are awarded, you hold a promise of future shares, not the shares themselves — there is no transfer of property and no value received in cash or kind. No TDS, no Schedule CG entry, no Schedule FA line (the shares do not exist yet). The grant is nevertheless worth documenting: the grant statement fixes the date from which vesting schedules run and the number of units that will later become taxable. Keep it with the vest statement, because the eventual perquisite and cost basis both trace back to the grant structure.
The two rates you will actually hit
Almost every RSU sale lands in one of two buckets:
- Sold within 12 months of vest (Indian-listed, STT paid): STCG at 20% under s.111A — the rate that jumped from 15% for transfers on or after 23 July 2024;
- Sold after 12 months (Indian-listed, STT paid): LTCG at 12.5% under s.112A, with the ₹1.25 lakh annual exemption.
For foreign-listed shares there is no STT and no s.112A exemption — the relevant section is s.112, and the long-term threshold is 24 months under s.2(42A). Compute the holding period from the vest date and pick the rate that matches the actual facts, not the rate the plan documents assume.
Frequently Asked Questions
1. At what point are RSUs taxed in India?
At vest (as a perquisite added to salary) and again at sale (as capital gains). The grant itself is not taxable.
2. What is my cost basis for capital gains on RSUs?
The FMV on the vest date — the same value already taxed as a perquisite — under s.49(2AA). Never zero, never the grant-date price.
3. Are RSU gains short-term or long-term if I sell after 12 months?
For Indian-listed shares, after 12 months it is long-term (12.5% under s.112A). For foreign-listed shares, the holding period for long-term treatment is 24 months under s.2(42A) —, as practice varies on foreign RSUs.
4. Is the ₹1.25 lakh LTCG exemption available on foreign RSU sales?
No. The ₹1.25 lakh exemption under s.112A applies only to STT-paid listed equity. Foreign shares carry no STT, so the gain is taxed at 12.5% under s.112 without that exemption.
5. Does the employer deduct tax at vest?
Yes. The perquisite is treated as salary, and the employer deducts TDS under s.192. If the employer is a foreign entity without Indian payroll, you must self-declare the perquisite and pay advance tax.
6. What holding period counts for LTCG on RSUs?
It runs from the vest date (date of allotment), not the grant date. The grant is a promise; the holding period starts when you actually own the shares.
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Map your vest-to-sale math
Compute your perquisite, cost basis and capital gain across vest and sale with the ESOP Tax Calculator — enter vest FMV, sale price, quantity and dates, and it reproduces the two-stage numbers above for your ITR.
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Last verified: 2026-08-08.
Sources: Sections 17(2)(vi), 45, 48, 49(2AA), 111A, 112, 112A, 2(42A) ITA 1961; Income-tax Rules, 1962 (Rule 3(8)); Finance (No. 2) Act, 2024 (capital-gains rates w.e.f. 23-07-2024).
Reviewer: pending CA sign-off. Draft status — do not publish before CA review.: holding period (24 vs 12 months) and applicable rate/section for foreign-listed RSU shares.
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See Also
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