How to Declare RSUs & ESOPs in Your Income Tax Return in India
As global corporations increase their presence in India, more professionals, particularly in the IT, finance, and startup sectors, are receiving equity-based compensation such as Restricted Stock Units (RSUs) and Employee Stock Option Plans (ESOPs). While these instruments provide excellent opportunities for wealth accumulation, they also carry multi-stage tax liabilities and regulatory obligations that most salaried individuals fail to consider. Improper reporting may result in tax notices or severe penalties.
RSUs are company shares granted to employees that vest over time or after achieving certain goals. You don’t own the shares until they vest. On the vesting date, the fair market value (FMV) is treated as perquisite income and taxed under the head “Salaries.” Later, when the shares are sold, capital gains tax is applicable based on the period of holding.
ESOPs, in contrast, give you the option of purchasing shares at a predetermined price after the vesting period is completed. Taxation occurs in two phases:
- On exercise, the difference between FMV and the exercise price is taxed as a perquisite under salary.
- On sale, gains are taxed under capital gains, with different rates for short- and long-term holdings.
When filing your Income Tax Return:
- Report perquisite value in Schedule S (Salaries)
- Declare sale gains/losses in Schedule CG (Capital Gains)
- If the shares are in a foreign company, disclose them under Schedule FA (Foreign Assets)
- Comply with FEMA regulations for holding and remitting foreign equity
Equity-linked compensation can also impact cash flow because tax may be due even if shares are not sold. Many professionals are unaware of how to handle this, and delays or errors in reporting may result in scrutiny from the Income Tax Department.
At Patron Accounting, we specialise in handling RSU and ESOP taxation for professionals, NRIs, and MNC employees. From calculating your perquisite value to managing foreign asset disclosures, we ensure full compliance and maximise your post-tax returns.
