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, the foreign shares and the overseas brokerage account go in Schedule FA of the return — even fully vested-and-taxed shares and shares sold during the year generally have to be disclosed. A non-resident or RNOR has no Schedule FA obligation for those assets.
Schedule FA requires peak balance, closing value and currency conversion for each holding and account. The department cross-checks it against information from foreign tax authorities, so under-reporting is increasingly visible.
The same shares, taxed once as pay and again on the profit
At vest the perquisite is salary — added to your income and taxed at slab, not at any capital-gains rate. At sale, the gain is only the rise above the value already taxed.
| Stage | Head of income | How it's taxed for an NRI |
|---|---|---|
| Vest / ESPP purchase | Salary perquisite (Section 17(2)) | Added to income, taxed at slab |
| Later sale | Capital gain | Capital-gains rate on the rise since vest |
The value taxed as salary at vest becomes your cost of acquisition, so the same slice isn't taxed twice. One practical distinction: any Indian-side withholding on the NRI's income runs under Section 195; the tax your foreign employer withheld at vest is foreign payroll withholding, credited through Form 67 — not Section 195.
When part of the vesting period was worked in India
Most RSU grants vest over several years, and over that stretch many NRIs move — into India, out of India, or back again. Where you were while the shares were vesting decides how much of each tranche India can reach, and the answer is rarely all-or-nothing.
The perquisite at vest relates to the whole grant-to-vest period, not the single vest day. So if part of that period was worked in India and part abroad, the vest value is split in proportion to where the work was done. The India-linked slice is Indian-sourced salary; the rest relates to services rendered outside India.
A common way to do the split is by workdays:
| Element | What goes in |
|---|---|
| India portion | Days worked in India during grant-to-vest ÷ total days in that period |
| Taxed in India | That fraction of the vest value |
So an engineer who spent, say, 40% of a tranche's vesting period working in India would have roughly 40% of that vest treated as Indian salary, with the balance relating to the overseas stretch. This apportionment matters most for the tranches that straddle your move — fully-abroad vests and fully-in-India vests are simpler. It also interacts with status: a vest that falls while you are Resident-but-Not-Ordinarily-Resident is generally only taxed on its India-linked portion, whereas once you are Resident and Ordinarily Resident the global vest can come into the Indian net.
Tax taken abroad, tax due in India, and the deadline that trips people up
Where the same vest is taxed abroad and in India, the foreign tax — withheld on the payslip or via a sell-to-cover — is credited against the Indian liability under Section 90. File Form 67 with proof (payslip, broker tax statement or foreign return) and the foreign tax is set off against the Indian tax on that income, up to the Indian rate.
The deadline is the trap. Form 67 must be filed by the end of the assessment year — for FY 2026-27, on or before 31 December 2027. Miss that window and the credit can be denied even though the foreign tax was genuinely paid. Gather the proof and lodge Form 67 with the return, not after.
Selling the shares: the 24-month clock, the exchange rate, and who India can tax
Foreign shares are not listed equity for India — they follow the rules for other capital assets. The long-term threshold is 24 months: hold past it and the gain is long-term at 12.5% without indexation; sell sooner and it is short-term at slab. The 12-month threshold and Section 112A/111A rates for Indian listed equity do not apply.
The gain is computed in rupees under Rule 115: cost and proceeds are each converted at the SBI telegraphic-transfer buying rate for the last day of the month before the relevant event — a dollar gain can shrink or grow once both legs are converted.
A non-resident's gain on foreign shares is outside India's net — the shares are situated outside India. Only a Resident taxed on worldwide income brings the sale in scope. One quirk for ROR filers: Schedule FA reports the calendar year ending 31 December inside the financial year, not April-to-March — report against the wrong period and the disclosure is incomplete.