Your RSUs vested in San Francisco but you spent two of the four vesting years in Bengaluru. India taxes half of them. Most people don't realise.

The taxable event for an RSU is vesting. The taxable event for an ESOP is exercise. Both events crystallise a value — the share price on that date — and that value becomes taxable as a salary perquisite in the country (or countries) entitled to tax it.

The instinct most engineers and finance professionals carry is: 'I was in San Francisco when it vested, so the US taxes it'. Or: 'I'm an NRI now, I left India two years ago, so India can't touch this'. Both instincts are usually wrong.

The rule, drawn from the OECD model tax treaty that India follows in most of its DTAAs, is that employment income — and equity comp is employment income — is sourced to the country where the underlying services were rendered during the period the income was earned. For a 4-year vesting RSU, the period of earning is the 4 years between grant and vest. If you spent 2 of those 4 years working in India and 2 in the US, India sources 50% of the vest. The US sources 50%. Both can tax their slice.

This is the country-split-by-days-of-service rule, and it's the single most-missed mechanic in cross-border RSU/ESOP planning.

Imagine you joined an Indian subsidiary of a US tech company in January 2022. You were granted 400 RSUs vesting equally over 4 years — 100 in January 2023, 100 in 2024, 100 in 2025, 100 in 2026. You moved to the US on an L-1 in January 2024 and have been there since.

The 100 RSUs that vested in January 2025 had a vesting period of 4 years (Jan 2021 to Jan 2025, on a typical grant-to-final-vest measurement) or 1 year (Jan 2024 to Jan 2025, on the per-tranche measurement Indian rules generally follow). Either way, your service straddles two countries.

Under the per-tranche approach: the Jan 2025 tranche was earned over Jan 2024 to Jan 2025 — 100% in the US. India's claim on that tranche is zero. The US taxes the full perquisite.

The Jan 2024 tranche was earned over Jan 2023 to Jan 2024 — 100% in India. The US's claim is zero. India taxes the full perquisite, even though it vested the same week you landed in San Francisco.

The Jan 2026 tranche was earned 100% in the US, India's claim zero.

If the grant carried a 4-year-cumulative service condition (less common but exists), the split is fractional — and that's where the days-of-service calculation gets technical. The conservative position is: get a written confirmation from your employer's stock plan administrator on whether the vest is treated tranche-by-tranche or cumulatively, and apply the source split accordingly.

If you were an Indian employee at the time of vesting, the Indian employer is required to compute the perquisite value (share price on vest date minus what you paid, if anything) and withhold TDS on it under the salary withholding section. The perquisite flows into your Form 16 for that year. The Indian-source portion of the RSU is taxed at your slab rate as salary income.

For ESOPs of eligible startups, the employer's TDS obligation can be deferred to the earliest of: 48 months from the end of the assessment year in which the shares were allotted, the date you sell the shares, or the date you cease employment. The tax is not waived — it's deferred. The eligibility bar is narrower than people assume: DPIIT recognition alone is not enough. The startup must also hold an Inter-Ministerial Board (IMB) certificate under Section 80-IAC, which fewer than 4,000 of India's ~2 lakh DPIIT-recognised startups currently hold. If your employer doesn't have the IMB certificate, the deferral does not apply — your tax is due in the year of vesting/exercise like any other employee.

If you left the Indian payroll mid-vesting, the Indian employer typically stops withholding from the date of transfer. The Indian-source portion of subsequent vests then becomes your responsibility to declare in your Indian ITR. Indian employers rarely chase former employees for this disclosure — but the tax department's data-sharing with stock plan administrators is improving, and the gap will be flagged in a 26AS reconciliation eventually.

The foreign employer (US, in the running example) treats the vest as W-2 wages and withholds US federal + state tax on the full vest value, regardless of the Indian source claim. This is where the double tax begins.

When both countries assert a tax claim on the same RSU, the DTAA between them provides a foreign tax credit (FTC) mechanism. For India-US, the relevant provision is Article 25 of the India-US DTAA — the credit-method article. India gives credit for US tax paid on the US-source portion. The US gives credit for Indian tax paid on the Indian-source portion. The credit is capped at the home-country tax on the same slice of income.

The Indian-side claim is filed via Form 67 on the income tax portal, before you file ITR-2 for the year. Form 67 requires: the foreign country's tax payment certificate (proof of US tax paid), the breakdown of the RSU tranche by source country, and the FTC computation showing the credit doesn't exceed the Indian tax on that slice.

Most NRIs miss Form 67 entirely. Without it, India processes the ITR claiming the full Indian-source RSU as taxable income with no offset, and you've paid Indian tax on income that the US has also taxed. The recovery path then requires a rectification under the relevant section of the Act, which is procedurally messy and often takes 12-18 months.

File Form 67 in the same assessment year as the ITR. Don't wait for a notice.

Mistake 1: Declaring only the US-source portion in your US tax return (Form 1040 / state return) because that's what your W-2 shows. You miss the fact that the full vest was on your W-2, and the part of it that India is sourcing back was already taxed in India. Without a Form 1116 FTC claim on the US side, you've paid US tax on Indian-source income. The fix: file Form 1116 (or the equivalent in your country) for the Indian-source portion of every cross-border vest, attaching the Indian Form 16 / TDS certificate as proof.

Mistake 2: Declaring only the Indian-source portion in your Indian ITR because that's what Form 16 shows. The Indian employer's TDS only captures the portion they're responsible for. If you exercised ESOPs of a foreign parent company after leaving India, that perquisite might not appear on any Indian Form 16 at all — but if the service period straddles India, the Indian-source portion is still taxable here. The fix: maintain your own RSU vesting tracker, compute the days-in-country split per tranche, and disclose the full Indian-source amount in ITR-2 even when Form 16 doesn't include it.

Mistake 3: Forgetting the foreign asset disclosure in Schedule FA of ITR-2. Vested-and-unsold shares held in a foreign brokerage are mandatory; granted-but-unvested RSUs are a grey area where the conservative position — supported by ITAT decisions and most CA practice — is to disclose them when there's beneficial interest. Schedule FA penalties under the Black Money Act start at ₹10 lakh per omission — and the department's data-matching with foreign brokerages via FATCA / CRS has tightened significantly post-2023. The fix: enumerate every foreign brokerage holding in Schedule FA every year, even if zero income was received. Resident-and-ordinarily-resident NRIs (the year you return and lose RNOR) carry this obligation in full force.

Quarter 1 (April-June): Pull your prior-year vesting summary from your stock plan admin (Carta, E*TRADE, Shareworks). For each tranche, mark the date of grant and the date of vest. Compute the days-in-each-country for the service period.

Quarter 2 (July-September): If you're filing ITR-2 for India for the prior FY, reconcile the Indian-source portion against your Form 16. Add any unreported tranches. File Form 67 for the US (or other foreign country) tax paid on the dual-source tranches.

Quarter 3 (October-December): If you're a US tax filer, prepare your Form 1116 for the Indian-source portion of the US tax year. Coordinate the calendar-year vs financial-year mismatch — US is January-December, India is April-March. The mismatch creates a one-tax-year lag in the credit, and the credit can be carried back one year and forward ten years under US rules. Indian FTC under Rule 128 is generally limited to the same year.

Quarter 4 (January-March): Plan any year-end optimisation. If you're approaching the year you'd lose RNOR status, sell vested-but-unsold foreign shares before the RNOR window closes — capital gains on those shares are not Indian-taxable while you're RNOR. Once RNOR ends and you become a resident-and-ordinarily-resident, the original cost basis (or the vest-date FMV already taxed as perquisite) carries through. There is no automatic step-up to FMV on the date of becoming a resident, so the planning lever is timing the sale, not waiting for a basis adjustment that doesn't come.

This quarterly rhythm catches 90% of the cross-border RSU/ESOP problems before they become notices, refund cycles, or condonation petitions.