RSU and ESOP tax in India: ₹20 lakh vest on ₹40 lakh pay

RSUs and ESOPs in India are taxed at two points. When the shares are allotted to you, at vesting for RSUs and at exercise for ESOPs, their fair market value less anything you pay is a salary perquisite, taxed at your slab through your employer's TDS. When you sell, the rise above that value is a capital gain, taxed by rules that depend on whether the shares are listed in India, listed only abroad or unlisted.

The vest is usually the bigger bill. On a ₹40 lakh salary, a ₹20 lakh vest costs about ₹7.65 lakh in tax, 38%, because it lifts total income past ₹50 lakh and a 10% surcharge then falls on the whole year's tax. Shares of a foreign company also go into the foreign-assets schedule of your return every year. The worked example and the sale table below take each step under FY 2026-27 rules.

When are RSUs and ESOPs taxed?

Nothing is taxed at grant. Under section 17(1)(d) of the Income-tax Act, 2025 (section 17(2)(vi) of the 1961 Act), the perquisite arises when shares are allotted or transferred to you: for RSUs when they vest and are delivered, for ESOPs when you exercise. Its value is the fair market value on that date less what you paid, which for RSUs is usually nothing. For a share listed in India, fair market value is the average of that day's opening and closing price; for an unlisted share it is a SEBI-registered merchant banker's valuation. Your employer deducts TDS on it with your salary and shows it in your Form 16 (Form No. 130 from tax year 2026-27).

How the tax is collected varies. Some employers sell or hold back part of the vested shares to cover the TDS; others recover it from salary, which can leave the vest month's pay much smaller. The year's tax is the same either way.

When you sell, your cost is the value already taxed as salary, so that part is not taxed again, and the holding period runs from the date of allotment.

Worked example: tax on a ₹20 lakh vest at ₹40 lakh

Rohan's gross salary is ₹40 lakh in FY 2026-27, under the new regime. During the year, RSUs in his employer's US-listed parent worth ₹20 lakh vest. Here is his year with and without the vest:

The vest adds ₹7,65,180 of tax, 38.3% of its value. Only ₹6,00,000 of that is the 30% slab rate on the vest itself. The ₹1,35,750 surcharge falls on the whole year's tax once income passes ₹50 lakh, so ₹75,750 of it lands on tax his salary was already paying; the remaining ₹29,430 is cess. Marginal relief, which caps tax plus surcharge just above ₹50 lakh at the tax on ₹50 lakh plus the income above it, does not help: the vest takes him ₹9.25 lakh past the line, far beyond the point where the relief runs out.

At a ₹25 lakh salary the same vest stays under the line. Taxable income goes from ₹24,25,000 to ₹44,25,000, all of the vest is taxed at 30%, and it costs ₹6,24,000 with cess, 31.2%.

How is the sale taxed: US, Indian or start-up shares?

Say the shares are worth ₹26 lakh when Rohan sells, ₹6 lakh more than at the vest. The ₹6 lakh gain is taxed by where the shares are listed and how long he held them, at the rates of the year of sale (in force since 23 July 2024 and unchanged for FY 2026-27). With income that year under ₹50 lakh and 4% cess:

Shares listed only abroad are not listed on a recognised stock exchange in India, so they follow the unlisted rules: more than 24 months to be long-term, and no share of the ₹1.25 lakh yearly exemption, which covers only listed Indian equity and equity funds (section 198 of the 2025 Act, section 112A of the 1961 Act) and is shared between them.

Both the cost and the sale price are counted in rupees. If the dollar price does not move but the rupee falls 5% against the dollar, ₹20 lakh of shares sells for ₹21 lakh and the ₹1 lakh is a taxable gain. Selling below the value taxed at vest gives a capital loss, which cannot be set off against salary; the tax paid at vest is not refunded.

Start-up ESOPs: tax before you can sell

With unlisted start-up options you pay the strike price and the perquisite tax at exercise, often years before there is a buyer for the shares. At a ₹100 strike and a ₹600 fair value, exercising 1,000 options means ₹1,00,000 of strike and a ₹5,00,000 perquisite, which in the 30% slab is ₹1,56,000 of tax: ₹2,56,000 in cash for shares you may not be able to sell for a while.

An eligible start-up can defer that tax: one incorporated on or after 1 April 2016 and before 1 April 2030, with turnover of no more than ₹300 crore (raised from ₹100 crore from 1 April 2026) and a certificate from the Inter-Ministerial Board of Certification. The tax then falls due within 14 days of the earliest of 60 months from the end of the tax year of allotment, your sale of the shares, or your leaving the company. Many late-stage start-ups do not qualify, so ask HR.

When a company buys back shares, the Finance Act, 2026 taxes what you receive as a capital gain from 1 April 2026, with the value taxed at exercise as your cost; from 1 October 2024 to 31 March 2026 the whole amount was taxed as dividend at your slab. Unlisted shares held more than 24 months are long-term, at 12.5%.

Foreign shares: reporting, dividends and US estate tax

Schedule FA. As a resident and ordinarily resident, you list shares of a foreign company in Schedule FA of your return every year, for the calendar year, including a year in which you sold them, so you file ITR-2 or ITR-3. Leaving out a foreign asset can cost a ₹10 lakh penalty under the Black Money Act, 2015; since 1 October 2024 it does not apply where foreign assets other than property total ₹20 lakh or less. If you missed earlier years, the one-time Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 takes online declarations until 31 December 2026; for an asset bought out of income already taxed, such as shares taxed at vest, worth up to ₹5 crore, the fee is ₹1 lakh.

Dividends. Dividends are taxed at your slab in India. A US company withholds 25% for an Indian resident who has filed a W-8BEN with the broker (30% without it), and India credits that, up to the Indian tax on the dividend, so in the 30% slab you pay about 6.2% more. The credit needs Form 44, which replaced Form 67, within 12 months of the end of the tax year.

US estate tax. If you are neither a US citizen nor US-domiciled, shares of US companies count as US assets wherever they are held, and an estate tax return is due when US assets exceed US$60,000 at death (IRS Form 706-NA). A large RSU holding can cross that line.

After a vest: what you are deciding

None of these has one right answer; the trade-off turns on your other assets, your goals and how much of your net worth one company already is.

• The cash test. A vest is a bonus paid in shares, and the tax is already paid. Holding is the same decision as using ₹20 lakh of cash to buy your employer's shares today.
• Concentration. Your salary, your unvested RSUs and these shares all depend on one company, and a bad year for it can hit the share price and the job together. Selling and spreading the money removes that link; holding keeps both the upside and the link.
• Tax on the way out. Selling soon after the vest costs little, as the gain over the vest value is small. Holding foreign-listed shares past 24 months cuts the rate on any later gain from your slab to 12.5%.
• Currency. US-listed shares are a dollar asset. That can suit dollar costs ahead, such as education abroad, and adds currency risk if your goals are in rupees.
• Paperwork. Each year you hold foreign shares means Schedule FA, and a large holding brings the US estate-tax point above.
• Plan rules. Trading windows and blackout periods can stop you selling on the day you choose, and a listed company's plan may set a lock-in.

If the money then goes to goals, the goal-based investing guide works out what each goal needs.

Sitting on a vest, or about to exercise? Ask for a call from a SEBI-registered investment adviser.

This is general information, not personalised tax or investment advice. The figures apply to FY 2026-27 under the new regime. Dhi is not a SEBI-registered investment adviser.