Taxing Foreign Equity in India: RSUs, ESPPs & Overseas Stocks
- 17 hours ago
- 13 min read
A field guide to understanding when tax bites, how much it takes, and what the government needs to know for every Indian resident receiving or investing in foreign equity.
Contents
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Section 01
Who This Applies To: Residential Status & Scope
The Indian tax system taxes individuals based on residential status, not citizenship. Your obligations differ significantly depending on whether you are a Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR).
Status | Indian income | Foreign income | Foreign asset reporting |
ROR | Fully taxable | Fully taxable | Mandatory (Schedule FA) |
RNOR | Fully taxable | Only if derived from India | Not required |
NR | Fully taxable | Not taxable in India | Not required |
Rule of thumb
Most employees at Indian MNC subsidiaries receiving stock compensation from a foreign parent are RORs. This guide primarily addresses ROR individuals, for whom all global income is taxable in India.
You are an ROR if you have been resident in India for at least 2 of the preceding 10 years AND for at least 730 days in the preceding 7 years.
Section 02
Restricted Stock Units (RSUs): Two-event Taxation
RSUs are taxed at two distinct moments: vesting and sale. Confusing these two events is the most common mistake made by employees.
Event 1 — Grant
No tax event. RSUs are merely a promise of future shares. Nothing is included in income at grant.
Event 2 — Vesting
Taxable as salary income. The fair market value (FMV) of shares on the vesting date, converted to INR, is treated as a perquisite under Section 17(2)(vi) of the Income Tax Act. Your employer is required to withhold TDS.
Event 3 — Sale
Taxable as capital gains. The difference between the sale price and the FMV at vesting (your cost of acquisition) is a capital gain or loss. Holding period is counted from the date of vesting.
Computing the perquisite at vesting
Perquisite Value = FMV on vesting date (in USD) × INR/USD rate on vesting date × Number of shares vested
The applicable exchange rate is the SBI TT buying rate as prescribed by the Income Tax Rules. Some employers use the RBI reference rate — check your Form 16 for the rate used.
Cost of acquisition for capital gains
The FMV that was taxed as salary at vesting becomes your cost of acquisition for capital gains purposes. You are not taxed twice on the same appreciation.
Capital Gain = Sale Proceeds (INR) − FMV at Vesting (INR)
Example
100 shares vest when ACME Corp trades at $50.
The INR/USD rate is ₹83.→ Perquisite = 100 × $50 × 83 = ₹4,15,000 added to salary;
TDS deducted by employer.
6 months later, shares are sold at $60.
INR rate is ₹84.→ Sale proceeds = 100 × $60 × 84 = ₹5,04,000→ Cost = ₹4,15,000
Short-term capital gain = ₹89,000 (held < 24 months)
Partial-year residents
If you were resident in India for only part of the vesting period, some employers apportion the perquisite. The Indian tax authority's position is that all perquisite is taxable in India if you are an ROR at the time of vesting, regardless of where you worked during the vesting period. Seek professional advice if you have multi-country history.
Section 03
Employee Stock Purchase Plans (ESPPs): Discount as Salary
ESPPs allow employees to purchase employer stock at a discount, typically 5–15%, sometimes with a look back period. The mechanics differ from RSUs but the tax logic is similar.
Taxation at purchase (the discount)
When you purchase ESPP shares, the discount you receive is treated as a perquisite under Section 17(2) and taxed as salary income in the year of purchase.
Perquisite = (FMV on purchase date − Purchase price) × Number of shares × INR rate
Taxation at sale (capital gains)
Your cost of acquisition is the FMV at purchase date (not your discounted purchase price). Holding period for LTCG/STCG purposes begins from the date of purchase.
Capital Gain = Sale Proceeds (INR) − FMV on purchase date (INR)
Look-back provisions
Many US-listed ESPPs have a look-back period (eg., 24 months) where the purchase price is 85% of the lower of FMV at offering date or purchase date. The tax authority will use FMV on the actual purchase date to determine the perquisite, not the offering date.
Event | Tax treatment | Head of income | TDS |
ESPP Purchase | Discount = Perquisite | Salaries | Employer must deduct |
ESPP Sale (within 24 months) | Gain over FMV at purchase | Short-term capital gains | No TDS on sale (self-report) |
ESPP Sale (after 24 months) | Gain over FMV at purchase | Long-term capital gains | No TDS on sale (self-report) |
Section 04
Foreign Stocks: Direct Investing via LRS
Individual residents may invest in foreign stocks directly through the Liberalised Remittance Scheme (LRS), with a per-year limit of USD 250,000 per individual.
LRS annual limit
USD 2,50,000 per individual per financial year. Includes all overseas investments, travel, education, etc.
TCS on remittance
20% TCS (Tax Collected at Source) on amounts exceeding ₹10 lakh remitted under LRS for investment purposes. Creditable against tax liability.
Tax treatment on acquisition
There is no tax event when you buy foreign stocks with LRS funds. The INR amount remitted (plus brokerage, fees, and foreign transaction charges) forms your cost of acquisition in INR terms.
Exchange rate for cost calculation
The cost of acquisition in INR is the INR amount you actually remitted. If you purchased using a foreign brokerage account with pre-existing funds, use the SBI TT buying rate on the date of purchase to convert.
Section 05
Capital Gains on Sale — Rates & Holding Periods
Key distinction
Foreign listed stocks are not treated as "equity" for Indian tax purposes. They are treated as unlisted securities. This means the preferential STCG rates applicable to Indian listed shares do NOT apply. Foreign stocks follow the rules for other assets.
Asset | Holding for LTCG | STCG rate | LTCG rate | Indexation |
Indian listed equity / equity MF | > 12 months | 20% (post-Jul 2024) | 12.5% (no indexation) | No |
Foreign listed stocks (RSU, ESPP, LRS) | > 24 months | Slab rate | 12.5% (no indexation) | No (post-Jul 2024) |
Debt MF / Bonds | > 36 months | Slab rate | 12.5% | No |
Finance Act 2024 changes
From 23 July 2024, the LTCG rate on foreign stocks was reduced from 20% (with indexation) to 12.5% without indexation. Short-term gains continue to be taxed at slab rates. These changes apply to transfers on or after 23 July 2024. Gains on assets transferred before that date may be eligible for the prior regime.
Computing capital gain in INR
Capital Gain (INR) = [Sale proceeds in USD × INR rate on sale date] − [Cost in INR]
Any currency appreciation is embedded in the capital gain. There is no separate forex gain treatment for individuals under Indian law. If the INR depreciates, your INR gain will be higher even if the stock price was flat in USD.
Example 1: Short-Term Capital Gains (STCG)
In this scenario, the shares are held for less than 24 months, classifying them as a short-term asset.
Scenario: Investing in Disney
Purchase Date: May 29, 2020
Purchase Price: $117.30
Sale Date: December 31, 2020
Sale Price: $150.00
Exchange Rate: You must use the SBI TT Buying Rate on the last day of the month immediately preceding the transaction month.
Rate for Purchase (as of April 30, 2020): ₹75.00
Rate for Sale (as of November 30, 2020): ₹80.00
Particulars | Calculation Breakdown | Amount in INR |
Sale Value | $150.00 × ₹80.00 | ₹12,000.00 |
Less: Cost of Acquisition | $117.30 × ₹75.00 | ₹8,797.50 |
Short Term Capital Gain | ₹12,000.00 - ₹8,797.50 | ₹3,202.50 |
Note: This gain of ₹3,202.50 will be added to the individual's total income and taxed at their applicable slab rate.
Example 2: Long Term Capital Gains (LTCG)
In this scenario, the shares are held for more than 24 months, classifying them as a long-term asset.
Scenario: Investing in Google
Purchase Date: April 13, 2017
Purchase Price: $840.18
Sale Date: May 4, 2019
Sale Price: $1,400.00
The Exchange Rate Rule:
Again, we look at the last day of the preceding months.
Rate for Purchase (as of March 31, 2017): ₹70.00
Rate for Sale (as of April 30, 2019): ₹75.00
The Calculation:
Particulars | Calculation Breakdown | Amount in INR |
Sale Value | $1,400.00 × ₹75.00 | ₹105,000.00 |
Less: Cost of Acquisition | $840.18 × ₹70.00 | ₹58,812.60 |
Long Term Capital Gain | ₹105,000.00 - ₹58,812.60 | ₹46,187.40 |
Note: Following the 2024 Budget updates, this Long-Term Capital Gain of ₹46,187.40 would be taxed at a flat 12.5% (without indexation benefits).
Play around with the calculator below to help you calculate capital gains on your US Stocks.
Note: It is also possible to take a view that "Capital Gains" should be converted at the SBI TT rate and not the individual purchase and sale amounts.
Set-off & carry-forward
STCG on foreign stocks can be set off against STCG on any other capital asset (including Indian stocks).
LTCG on foreign stocks can be set off only against LTCG on any other capital asset.
Unabsorbed capital losses can be carried forward for 8 assessment years.
Capital losses cannot be set off against salary or other income heads.
Section 06
Dividend Income from Foreign Stocks
Dividends received on foreign stocks, whether from RSU/ESPP shares or LRS investments, are fully taxable in India as Income from Other Sources at your applicable slab rate.
Grossing up for foreign withholding tax
Many jurisdictions (notably the US) withhold tax at source. For example, the US withholds 25% on dividends paid to Indian residents (the US-India DTAA reduces this to 15% if W-8BEN is filed correctly with your broker).
In India, you must include the gross dividend (before foreign withholding) in your income. You then claim a Foreign Tax Credit (FTC) for the withholding tax paid abroad.
Taxable dividend income in India = Gross dividend (in USD) × INR rate on receipt date
Form W-8BEN: should you file it?
If you hold US stocks (common with ESPP/RSUs from US-listed employers), filing a W-8BEN with your US broker or custodian confirms your non-US status and activates the 15% DTAA rate instead of the default 30% withholding. This directly reduces foreign tax withheld.
Section 07
Foreign Tax Credit: Avoiding Double Taxation
India provides relief from double taxation through Foreign Tax Credit (FTC) under Rule 128 of the Income Tax Rules, read with Section 90/91 of the Income Tax Act.
Who can claim
Any ROR who has paid tax in a foreign country on income that is also taxable in India. This covers: US capital gains tax, US dividend withholding, and similar taxes in other jurisdictions.
How FTC works
Step 1
Determine the Indian tax on the doubly-taxed income (computed as if it were your last layer of income).
Step 2
Determine the foreign tax paid on that income, converted to INR at the SBI TT buying rate on the date of payment.
Step 3
FTC = Lower of (Indian tax on that income) or (Foreign tax paid). You cannot claim FTC exceeding your Indian tax liability on that income.
Step 4
File Form 67 on the income tax portal before filing your ITR. Without Form 67, FTC claims are disallowed.
Critical deadline
Form 67 must be filed on or before the due date of ITR (typically 31 July, or 31 October if audit required). Courts have held that belated filing of Form 67 results in denial of FTC. Do not overlook this step.
FTC is not available for
Taxes that are refundable or which were never actually paid (e.g., if you received a full refund abroad).
Interest or penalties paid abroad, only the core tax qualifies.
Taxes paid on income not included in your Indian return.
Section 08
Reporting Obligations — Schedule FA, Form 67, ITR
For ROR individuals, holding foreign assets triggers mandatory disclosure requirements that are separate from your tax payment obligations. Failure to report can trigger severe penalties under the Black Money Act 2015.
Schedule FA (Foreign Assets) in ITR-2 / ITR-3
Any ROR holding foreign assets at any point during the financial year must disclose them in Schedule FA. This includes:
Table in Schedule FA | What to report |
A1 — Foreign depository accounts | Foreign bank accounts (held directly or jointly) |
A2 — Foreign custodial accounts | Brokerage accounts holding foreign securities (RSUs, ESPPs, LRS stocks) |
A3 — Foreign equity & debt interests | Direct shareholding in foreign companies >1% stake |
A4 — Foreign cash value insurance / annuity | Foreign life insurance or pension contracts with cash surrender value |
A5 — Financial interest in foreign entity | Any beneficial ownership or signing authority in foreign entity |
Information required for each account/holding
Country name and code
Name and address of institution/company
Account number or identification
Peak balance / peak value during the year (converted to INR)
Closing balance / closing value
Gross proceeds from sale during the year
Income earned and included in Indian return
Unvested RSUs — do they count?
Yes. Unvested RSUs represent a beneficial interest in a foreign entity and must be disclosed in Schedule FA from the first year of grant. Many employees miss this because no economic benefit is yet realised. The disclosure is based on the grant, not the vest.
in general, below is the best practice agreed upon by most tax advisors:
What part of Schedule FA do you report your RSUs or ESPPs? A3 - Foreign equity and debt interest? B - Financial interest in any entity outside India? D - Any other capital assets outside India? Unfortunately, this isn't a black and white answer. This involves a discussion regarding what has been done in previous years. You do not want to change positions from year to year (unless what was done earlier is completely wrong). A lot of articles and opinions seem to suggest you can report it under D. Other Assets since reporting requirements are lower in said schedule. We generally do not subscribe to this view.
Calendar Year reporting Note that reporting in Schedule FA is based on the accounting year followed by the country in which asset is held. This means that if your shares are of a US company, you will have to follow calendar year basis for reporting.
Initial Value of Investment The value of your investments (in foreign currency) as on the initial date of vesting multiplied by SBI TT/ RBI reference rate on said date. Now, problem might be that your initial investment may have been years ago and you may not have reported the Foreign Asset all these years. What do you do in this case? Contact Reyman Wealth!
Peak Value of Investment This is the highest value of your investment during the Calendar Year. If you are reporting assets for FY 2025-26, consider Calendar Year 2025. Highest value in USD will be multiplied by SBI TT/ RBI reference rate on said date
Closing Value of Investment Value of investments as on 31 December multiplied by SBI TT/ RBI reference rate said date.
Should I report the Company name (Alphabet, Amazon, etc) or the Broker name (Morgan Stanley, E-trade, etc). This is a judgement call to be honest. Work with your CA and determine which is the best option in your case - we've gone both ways on this depending on the facts of the case.
Reporting of income and sales Any income (say dividend) or sale of RSUs is required to be reported under schedule FA. Ensure you don't miss out on this part. We've had a lot of people reach out to us after making this mistake.
Do I have to create separate line items for each purchase/ vesting? Can I show all RSUs under one line in Schedule FA? Again, unfortunately, this is a judgement call. Work with your CA to determine what works best in your case.
Which ITR form to use
If you hold foreign assets, you cannot use ITR-1 (Sahaj). You must use ITR-2 (if no business income) or ITR-3 (if you have business or professional income or are a partner in a firm). Schedule FA is available only in ITR-2 and ITR-3.
Section 09
FEMA & LRS Compliance
Beyond the Income Tax Act, foreign equity holdings are regulated by the Foreign Exchange Management Act (FEMA) administered by the Reserve Bank of India.
RSUs & ESPPs from employer
Covered under the FEMA (Transfer or Issue of Foreign Security) Regulations. An Indian resident may hold shares received as compensation without separate RBI approval, provided the employer is a listed foreign company.
LRS direct investments
Permitted under the LRS limit of USD 2,50,000 per financial year. All remittances go through an AD-I bank, which reports to RBI's FLAIR system.
Repatriation of sale proceeds
Sale proceeds from foreign stocks must be repatriated to India within a reasonable time (generally interpreted as within 60–90 days of sale, though no hard deadline is specified). Proceeds may be credited to an RFC (Resident Foreign Currency) account or reinvested under LRS.
APR — Annual Performance Report
If you hold shares in a foreign company equivalent to a 10% or greater stake (unlikely for typical RSU/ESPP holders but possible for founders), you must file an Annual Performance Report (APR) with RBI through your AD bank. This is separate from the income tax Schedule FA disclosure.
Section 10
Common Mistakes & Penalties
Mistake | Consequence | Penalty risk |
Not disclosing unvested RSUs in Schedule FA | Treated as undisclosed foreign asset | Black Money Act — ₹10L flat + 300% tax on value |
Using ITR-1 when holding foreign assets | Return treated as defective; notice issued | Notice u/s 139(9); return invalid |
Not filing Form 67 before ITR due date | FTC disallowed; entire foreign tax becomes a cost | Higher tax payable + interest u/s 234B/C |
Treating foreign stock LTCG at 10% (equity rate) | Under-declaration of tax | Tax demand + penalty u/s 270A |
Not grossing up dividend (reporting net of withholding) | Under-declaration of income | Penalty u/s 270A up to 200% of tax |
Wrong exchange rate used for perquisite valuation | Incorrect cost of acquisition → wrong capital gain | Potential mismatch with Form 16; scrutiny risk |
Section 11
Summary Cheat Sheet
Event | Income head | Rate | TDS? | Form/Schedule |
RSU vesting | Salaries (perquisite) | Slab | Yes (employer) | Form 16 / Schedule S |
RSU sale < 24 months | STCG | Slab | No | Schedule CG |
RSU sale > 24 months | LTCG | 12.5% | No | Schedule CG |
ESPP purchase (discount) | Salaries (perquisite) | Slab | Yes (employer) | Form 16 / Schedule S |
ESPP sale < 24 months | STCG | Slab | No | Schedule CG |
ESPP sale > 24 months | LTCG | 12.5% | No | Schedule CG |
Foreign dividend | Other sources | Slab | No (self-report) | Schedule OS + Form 67 |
LRS stock sale < 24 months | STCG | Slab | No | Schedule CG |
LRS stock sale > 24 months | LTCG | 12.5% | No | Schedule CG |
Foreign asset disclosure | — | Mandatory | — | Schedule FA (ITR-2/3) |
Applicable ITR forms
Foreign asset holders must use ITR-2 (salaried with capital gains) or ITR-3 (with business income). ITR-1 is not eligible. Always file Form 67 for FTC claims before submitting your ITR.
A lot of the above article oversimplifies things to make it a light read. We haven't even gotten to the complications of Schedule FSI. Add to this the new FAST-DS scheme for foreign asset disclosure amnesty and we have a whole mix of complications. If you need help with feel free to contact us. Our team of experts will be happy to help you:
Investing and portfolio management
Spending optimization, EMIs & credit cards
Insurance advisory
Tax planning
Will & estate planning
Most other financial queries or challenges
You can also email us at help@reymanwealth.com
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