The two taxable moments: the vest and the sale
An RSU or ESPP is taxed twice over its life, and keeping the two events apart is what makes the whole thing tractable.
The first moment is the vest (for RSUs) or the purchase (for an ESPP). When RSUs vest, the market value of the shares you receive is treated as salary you've been paid in kind — a perquisite under Section 17(2). For an ESPP, the perquisite is the discount: the gap between what you paid and the market value on the purchase date. This is salary income, not capital gains, and your employer's payroll usually values it and reports it.
The second moment is the sale. Whatever the shares are worth above the value already taxed at vest is a capital gain when you sell. The cost for this gain is the value India (or the foreign country) already taxed as salary — you are not taxed twice on the same slice, because the salary-taxed amount becomes your cost base.
Which of these two India actually gets to tax depends on your residential status in the relevant year — and that is the next, and most important, distinction.
Why your residency on the vest date decides everything
India taxes a person on the basis of residential status for that specific year (Section 5, Section 6). For someone whose life straddles two countries, the same RSU grant can produce a vest that India taxes and a later sale that it doesn't — or the reverse.
| When the event happens | What India taxes |
|---|---|
| Vest while you are India-resident | The full vest value as salary, even though the shares are foreign |
| Vest while you are a non-resident | Only the part relating to days you worked in India during the grant-to-vest period |
| Sale while you are a non-resident | Generally nothing — a foreign-share gain to a non-resident is outside India's net |
| Sale while you are India-resident (ROR) | The worldwide gain on the foreign shares |
The trap is the returning NRI. You move back to India, your old foreign RSUs keep vesting on the original schedule, and those post-return vests are now Indian salary — often a surprise, because nothing on the foreign payslip flags it. The mirror trap is the leaver: you relocate abroad, sell shares while non-resident assuming India still taxes them, and over-report. The right treatment is decided tranche by tranche, against your status on each vest and each sale date.
Being taxed in two countries, and the credit that fixes it
Where a vest is taxed both abroad (withheld by the employer or broker) and in India (because you were resident when it vested), you are looking at the same income in two tax nets. The treaty between India and that country, read with the foreign tax credit rules, is what stops it being a genuine double hit.
The mechanism is a credit, not an exemption: India still computes its tax on the income, then allows you to set the foreign tax already paid against the Indian tax on that same income, up to the Indian rate. To claim it you file Form 67 before filing the return (Rule 128), supported by proof of the foreign tax — the foreign payslip, the broker's tax statement, or the foreign return.
The sale side needs care too. The US, for instance, may tax the capital gain on disposition; if you are also India-resident in the year of sale, India taxes the worldwide gain and a credit is again claimed through Form 67. Getting the cost base right on both sides — the vest value, the right exchange rate, the holding period — is what keeps the two computations consistent so the credit actually lands.
A worked example: Karthik moves back to Bengaluru
Karthik worked at a US tech firm in Seattle for four years and built up RSUs vesting quarterly. In mid-2024 he moved back to Bengaluru and stayed on remotely, then later joined an Indian employer. For the year he returns, he is India-resident.
Two tranches vested after his move, each worth about US$20,000. Because he was India-resident on those vest dates, both vests are Indian salary under Section 17(2) — roughly ₹33 lakh in total at the year's exchange rates — on top of whatever his Indian salary is. His US broker withheld US tax on the vests, so he files Form 67 and credits that US tax against the Indian tax on the same ₹33 lakh, paying the difference rather than the full amount twice.
When he sells a parcel a year later while still India-resident, the gain over the already-taxed vest value is a capital gain on foreign (unlisted-for-India) shares — taxed in India on the worldwide gain, with the vest value as the cost base and US tax on the sale, if any, credited again via Form 67. And because he is now a Resident and Ordinarily Resident, his US brokerage account and the unsold shares must be reported in Schedule FA of his return. The numbers are illustrative; the structure — vest as salary, sale as gains, credit for foreign tax, Schedule FA disclosure — is the part that holds.
Reporting the foreign shares: Schedule FA
Once you are a Resident and Ordinarily Resident for the year, India expects you to disclose foreign assets — including the foreign shares from your RSU/ESPP and the overseas brokerage account that holds them — in Schedule FA of the income tax return. This is a disclosure obligation that sits on top of the tax: even fully vested-and-taxed shares, and even shares sold during the year, generally have to be reported.
A non-resident, or a Resident-but-Not-Ordinarily-Resident (the typical status in your first year or two back), does not have a Schedule FA obligation for the same assets — another reason your status for the year drives the whole filing, not just the tax.
Schedule FA is detail-heavy: peak balance, closing value, dates and the right currency conversion for each holding and each account. It is also the part the department now cross-checks against information shared by foreign tax authorities, so under-reporting is increasingly visible. The companion tool below helps you assemble the figures before they go on the return.