Your RSUs Are Not Just Salary: The Two Separate Disclosures Required in AY 2026-27 ITR

Your RSUs Are Not Just Salary: The Two Separate Disclosures Required in AY 2026-27 ITR

Every ITR filing season, the same error appears across tech employees' returns: the RSU income from their US employer is reported correctly under salary, Form 16 matches, and the ITR is filed. What is missed is that the shares received on vesting — now sitting in the employee's Schwab or Fidelity account — are a foreign asset requiring a separate disclosure in Schedule FA, regardless of whether any of them have been sold.

The two obligations are legally distinct. Missing the income side is an underreporting. Missing the foreign asset side is a Schedule FA omission that can attract a penalty of ₹10 lakh per year under the Black Money Act, even if every rupee of tax has been paid correctly.

The Two Disclosure Requirements

Disclosure 1: RSU income at vesting — Schedule S (Salary). When RSUs vest, the FMV of shares on the vesting date is perquisite income under Section 17(2) of the Income Tax Act, 1961. This should appear in Form 16 if the employer deducts TDS. If not (common for subsidiaries not running Indian payroll), the employee must compute and disclose directly. ITR-2 is required — RSU perquisite income disqualifies you from ITR-1.

Disclosure 2: Shares held at year-end — Schedule FA (Foreign Assets). Even after perquisite tax has been paid on vesting, the shares are now a foreign asset. Schedule FA requires disclosure of all foreign assets held at any point during the calendar year ending December 31, 2025 — which is the relevant period for AY 2026-27. If you vested in March 2025 and sold in April 2025, you still held foreign shares during the relevant calendar year — Schedule FA disclosure is required even though you no longer hold them on March 31, 2026.

AY 2026-27 Specific: The Old Act Still Applies

The Income Tax Act, 2025 (ITA 2025) takes effect from April 1, 2026 — meaning it applies from AY 2027-28. For AY 2026-27 (income of FY 2025-26), the Income Tax Act, 1961 continues to govern the filing in its entirety. The ITA 2025 renaming (Tax Year instead of Assessment Year, etc.) does not apply to returns being filed now.

How to Compute the Perquisite Value

For listed shares on a recognised foreign stock exchange: FMV on vesting date × shares vested × INR/USD TT selling rate declared by SBI on the date of vesting. The gross vested shares are the starting point, not net shares received after "sell to cover" withholding — income is on all shares vested.

Schedule FA: What to Fill In

Table A3 — Equity and debt interest in any entity outside India. For each company whose shares you hold: country name and code, name and address of the foreign entity, nature of entity, date of acquisition of each lot, number of shares at start / acquired / disposed / held at end of period, total investment at cost (INR), income from the asset during the period (dividends), amount brought into India.

The DTAA Credit for US Tax

Most US RSU vesting events involve US federal and state tax withholding. Indian employees pay Indian tax on the same perquisite. DTAA between India and USA (Article 23) allows a credit for US taxes paid against Indian tax on the same income. To claim: obtain Form W-2 showing RSU income and tax withheld → file Form 67 online on the Indian income tax portal before filing ITR (pre-condition, not optional) → claim credit in ITR under "Relief under Section 90/91". Credit limited to Indian tax attributable to doubly-taxed income.

Capital Gains on Sale

Cost basis = FMV on vesting date (on which perquisite tax was paid). Gains = sale proceeds minus FMV at vesting. Holding period from vesting date (not grant date). For US-listed shares: LTCG (>24 months) at 20% with indexation or 10% without; STCG at slab rates. Gains reported in Schedule CG in ITR-2.

Most Common Mistakes

• Filing ITR-1 instead of ITR-2 — RSU perquisite income from a foreign employer requires ITR-2.
• Not disclosing shares already sold — if vested and sold within the same year, Schedule FA disclosure is still required.
• Using the wrong exchange rate — use RBI/SBI TT selling rate on vesting date, not an average rate.
• Missing Form 67 before ITR — DTAA credit claim fails if Form 67 is not filed as a pre-condition.
• Not reporting dividend income from RSU shares — dividends from foreign companies must be declared as income from other sources.

I'm CA Harun Raaj, Visakhapatnam. ITR-2 filings involving RSUs, ESOPs, and foreign assets are time-sensitive given the July 31 deadline. Reach out if your return involves any of these and you want it done correctly.

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